Published: Tue, September 12, 2017
Markets | By Noel Gibbs

Inflation hits 2.9% as fuel and clothing costs grow

Inflation hits 2.9% as fuel and clothing costs grow

The clothing and footwear component recorded an increase of 4.6% over the year, the strongest gain on record and three other categories registered the strongest annual increase since at least 2012.

United Kingdom consumer price inflation including owner occupiers' housing costs (CPIH) came in at 2.7% in August, up from 2.6% in July.

The ONS added: "The increase in clothing price inflation may be partly associated with the lagged response to the depreciation of sterling during 2016 as supply contracts with overseas producers may now be renewed on different terms".

It attributed the increase to the fall in the value of the pound since the European Union referendum which has forced up prices for imported goods - costs which are evidently being passed on to shoppers at a time they can least afford them.

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Motor fuels were also pushing the overall cost of living higher, with fuels and lubricants rising 1.6 per cent month-on-month in August following a 1.3 per cent fall previous year. Wage growth in the United Kingdom remains poor despite the fact that the labour market ostensibly looks strong.

In July, inflation remained at 2.6%, the level it had reached in June, with some economists suggesting it had "topped out".

Ben Brettell, senior economist at Hargreaves Lansdown, said it looked likely inflation would fall back in the coming months, as the effect of Brexit-induced sterling weakness fell out of the year-on-year calculation. Interestingly, the core CPI figure was also higher than expected at 2.7%, suggestion some of the pass-through effects of the fall in the currency impacting non-core goods and services. Mark Carney will certainly be hoping so, as it will save him the trouble of writing to the Chancellor to explain himself.

"All in all I see more deflationary forces than inflationary in the world economy at present".

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BOE officials are expected to keep their benchmark interest rate steady at 0.25% when they announce this month's policy decision Thursday.

"Policy wise, we think the Bank of England will look through the inflation data and we still believe that the Bank will remain on hold until 2018".

Currie noted that fleeting inflation and tepid economic growth means the Bank of England is unlikely to turn off the taps of monetary stimulus too quickly. Headline inflationary pressure should begin to moderate in 2018 as the large moves in the pound drop out of the reported numbers.

It also make its harder to save as many cash bank accounts will not beat inflation.

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