INFLATION is expected to have accelerated when official figures are released tomorrow, maintaining the squeeze on cash-strapped households struggling with low wage growth.
The Consumer Price Index (CPI) measure of inflation is forecast to hit 2.7 per cent for July, up from 2.6 per cent in June, according to consensus figures. This would mark a bounce-back following June’s surprise slowdown, but would fall short of the near four-year high of 2.9 per cent recorded in May.
The update from the Office for National Statistics (ONS) will also prove crucial for commuters, as July’s Retail Price Index (RPI) figure will be used to calculate rail fares. RPI, a separate measure of inflation which includes council tax and mortgage interest payments, is expected to grow by 3.5 per cent in July, the same rate as June.
Alan Clarke, head of European fixed income strategy at Scotiabank, predicts CPI will hit 2.8 per cent, driven in part by rising food prices.
Clarke, pictured, said: “Food price falls came to a fairly abrupt end in the aftermath of the Brexit vote, particularly on the back of the sharp fall in the GBP exchange rate. They have risen for seven of the last eight months, last month being the exception.
“Overall, we view last month’s downward adjustment in inflation as temporary and the peak in inflation is yet to be reached.”
The main downward pressure on the cost of living in June came from fuel, with the fourth consecutive month of falling prices, dropping 1.1 per cent month on month.
Andrew Goodwin, lead UK economist at Oxford Economics, expects falling fuel prices will continue to weigh on the cost of living, keeping CPI at 2.6 per cent.
He said: “Department for Energy and Climate Change data suggests petrol prices fell by more than one per cent in July, but we will see upward pressure from energy prices, as EDF’s late-June hikes in gas and electricity bills hit the index.”
Despite the financial pressure, consumer spending has remained robust, but there evidence suggests households have been raiding money earmarked for savings, or using credit cards, to keep spending.
The Bank of England expects inflation to peak at three per cent in the autumn.
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