Inflation edges up for first time since December

Inflation in July 2024 increased for the first time since December 2023 to return to a level above the Bank of England’s target of 2%.

All three measures of inflation rose in the 12 months to July according to the latest cost of living data from the Office for National Statistics.

The consumer prices index (CPI) went up from 2.0% in June to 2.2% in the 12 months to July. Meanwhile, the measure of CPI which also includes owner-occupiers’ housing costs (CPIH) edged up from 2.8% to 3.1%.

The retail prices index (RPI) – not an “official” statistic but still the measure most often used by unions in pay negotiations – recorded its first increase in nearly a year, moving from 2.9% in the 12 months to June to 3.6% in July.

Yesterday the ONS announced that annual growth in average weekly earnings (excluding bonuses) had fallen from 5.8% in May to 5.4% in June.

The increases to CPI and CPIH were mainly driven by energy costs falling by less than they did in July 2023. The largest downward contribution came from restaurants and hotels, where hotel prices fell this year having risen last year.

The increase in inflation comes only a fortnight after the Bank of England announced its first cut in interest rates since the start of the pandemic.

Grant Fitzner, chief economist at the ONS, told BBC Radio’s Today programme that “under the bonnet” price rises remained under control, with services inflation down and food prices unchanged.

“This still suggests that inflation pressures at least in the short run are fairly moderate,” he said.

Lalitha Try, economist at the Resolution Foundation, said: “The first rise in inflation in seven months may sound like bad news, but in fact the small size of the increase – and the sharp fall in services inflation that lies behind it – is good news for both consumers and policy makers.

“The price of domestic services such as restaurants and leisure activities have replaced food and energy bills as the focus of price pressures – for now at least. Keeping a lid on these price rises will hold the key to keeping overall inflation close to target and getting interest rates down.”

TUC general secretary Paul Nowak said: “Inflation has been driven by problems like high energy prices, not by wages. The Bank of England should continue to ease pressures on families and businesses by bringing interest rates down.

“The government’s plan to boost workers’ rights can be a game changer, driving up productivity and making work pay. And if we invest in industry, including energy security with our own national supply, we can better control future inflation.”

Martin Sartorius, principal economist for the CBI, said: “Inflation undershooting the Bank of England’s expectations will be seen a positive sign that price pressures are continuing to normalise for households and businesses.

“Today’s data will give the Bank’s Monetary Policy Committee some measure of confidence that domestic price pressures are less likely to derail a sustainable return to the 2% target. A second consecutive cut in interest rates next month is not a certainty, however. This is because the MPC will still be mindful of upside risks to the inflation outlook, especially as pay growth remains stubbornly high.”

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