Inflation rate up again

The consumer prices index (CPI) rate of inflation rose to 4.5% in August, up from 4.4% in July, the Office for National Statistics (ONS) said. This was equal to the CPI rate in May and was last higher in September 2008.

Housing, water, electricity and gas prices increased by 5.1% year-on-year, the ONS said - the highest annual increase since July 2009 - in a month when Scottish Power and British Gas both raised their energy tariffs.

Elsewhere, ONS figures showed the UK’s trade deficit in goods - the gap between goods imported and exported - was flat at £8.9 billion in July.

Scottish Power and British Gas raised their gas tariffs by 19% and 18% respectively in August, alongside big increases for electricity, tightening the squeeze on household incomes already hit by rising food and fuel costs.

The pressure on inflation from energy suppliers is not likely to let up as Scottish & Southern Energy and E.ON are raising their prices this month and Npower hikes bills from October 1.

The Bank of England, which has forecast inflation hitting 5% before the end of the year, would have widely expected today’s increase in the rate of inflation, which is still well-above the 2% Government target.

The Bank expects inflation to fall below target to around 1.8% in two years’ time, particularly as this year’s VAT increase falls out of the calculation.

Clothing and footwear saw its biggest annual increase since records began in 1997, up 4% year-on-year, with the largest upward effects coming from women’s outerwear, where prices rose at the start of the autumn season.

There were further record rises in August, with furniture, household equipment and maintenance up 5.8% year-on-year and restaurants and hotels soaring 4.6% - both the highest annual increases on record.

The main downward pressures came from transport services, particularly transport by air, sea and rail. There was also some respite in recreation and culture, particularly from games, toys and hobbies, the ONS said.

Elsewhere, the retail prices index of inflation, which includes housing costs such as mortgage payments and council tax, increased to 5.3% in August, up from 5% in July.