Energy bills and clothing prices drive up inflation

SOARING energy bills and record increases in clothing prices helped push the rate of inflation to near a three-year high last month.

The consumer prices index (CPI) rate of inflation rose to 4.5 per cent in August, up from 4.4 per cent 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 per cent 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.

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Clothing and footwear saw its biggest annual increase since records began in 1997, up four per cent 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 per cent year-on-year and restaurants and hotels soaring 4.6 per cent – both the highest annual increases on record.

The figures have highlighted the pressure on savers at a time of record low interest rates. They were dealt a further blow last week when National Savings & Investments (NS&I) withdrew from sale its inflation-beating bonds, leaving only five accounts on the market which negate tax and inflation.

And the organisation for older people, Saga, warned how inflation was proportionately higher for over-50s.

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Dr Ros Altmann, director general of Saga, said: “The over-50s are being ignored in policy terms. Their savings have been shot to pieces and they are being burdened by soaring inflation.”

Despite the current spike, the Bank of England’s strongest advocate for pumping more money into the economy (quantitative easing, or QE) argued that high inflation was not a threat to the UK’s recovery as he reiterated his call.

Adam Posen, a member of the Bank’s Monetary Policy Committee (MPC), said: “Make no mistake, the right thing to do right now is for the Bank of England and the other G7 central banks to engage in further monetary stimulus. If anything, it is past time for us to do so.”

The case for more QE was strengthened when separate ONS figures showed the UK’s trade deficit in goods – the gap between goods imported and exported – was flat at £8.9bn in July, raising fears over growth prospects.

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While exports grew in the month, they were overshadowed by stronger growth in imports. Furthermore, analysts warned that weakened global growth, particularly the slowdown in the eurozone, does not bode well for UK exports in the near term. Economists expect the rate of inflation to peak at around five per cent this autumn.