Food price rises and delayed summer clothes sales by high street retailers lifted
The bigger-than-expected rise in the consumer price index (CPI) measure of inflation to 1.9% in June from 1.5% in May will further cloud the picture for Bank of
"The news will further fuel expectations that the Bank of
"With inflation almost hitting the Bank of
Economists in a Reuters poll had forecast a small rise to 1.6% but a combination of factors lifted inflation higher, the
The main upward effects on CPI inflation, the rate targeted by the BoE, came from clothing and footwear, where prices rose between May and June this year but fell during the same period last year, which is typical for the summer sales season. An ONS statistician said there were signs that this year's warm weather prompted retailers to delay their discounts. Economists said this was likely to be reversed in July.
There was also upward pressure from food and non-alcoholic drinks, where again prices rose this year and fell last year. Air fares rose by more this year than in 2013 and furniture prices also picked up more than a year ago.
The unexpectedly strong pick-up in inflation took markets by surprise and the pound strengthened to a session high of
"It currently looks a very close call as to whether the Bank of
The Treasury focused on the fact that inflation was still below the target.
"The coalition government's long-term economic plan is working, with today marking the sixth consecutive month that inflation has been below the Bank of
The Bank, which sets policy with a view to targeting inflation two years out, will also want to see whether wages are picking up and to what extent they could lift broader inflation in the future months. There was some reassurance for policymakers on pipeline inflation pressures in separate producer prices figures yesterday. The data showed producers' costs continued to fall last month and that there was barely any rise in what they charged customers - so-called "factory gate prices".
The latest figures on pay are out today but are widely expected to show wage rises continuing to lag well behind inflation, so falling in real terms.
"In the near-term, inflation is likely to remain subdued with the producer price inflation figures highlighting a lack of pipeline price pressures while remarkably low wage rate numbers also point to little near-term inflation threat. The strength of sterling will also help limit the upside for inflation," said
But with the economy growing by more than 3% this year and next and jobs being created, spare capacity was being eroded meaning the BoE would want to hike in November to head off higher inflation further out, he added.
"This would also remove political concerns of waiting until early next year when election campaigning is in full swing," said Knightley.
Feeling the heat:
As warm June weather persuaded shoppers to hit the stores for summer clothes, many retailers tried to cash in by pushing back their usual summer sales. Instead of the typical fall in June, clothing and footwear prices were up 0.6% this year, with women's trousers and skirts the main culprits.
Food and drink prices also lifted overall inflation. Bread and cereals rose 1.2% in June while soft drinks were up 1.4%. But fish and fruit prices fell, as did wine and beer, while the cost of spirits and tobacco increased.
For those making an early getaway, air fares were up by 7% and boat journeys went up 5.2%.
Furniture and furnishings picked up 1.5%, but gardening gear fell 0.3%.
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