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Transport and computer games up UK inflation to 2.5%


Liam Sheasby

Liam Sheasby, News Editor
15 Aug 2018, 12:26 p.m.


New figures from the Office for National Statistics (ONS) have reported that the Consumer Prices Index (CPI) rose for the first time since November, climbing to 2.5% in July having sat at 2.4% for the previous three months.

The Bank of England expected the rise in inflation and pre-empted it by raising the UK interest rate from 0.5% to 0.75% - the first rate rise in a decade and the highest level since March 2009.

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Source: tradingeconomics.com. Data depicts UK inflation from August 2017 to July 2018.

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The CPI is the primary measure of inflation and derives its findings off averages for goods and services, such as transport, food, healthcare, and other factors. The last inflation rise was in November, from 3% to 3.1%, but since then the CPI has steadily fallen.

Another measure of inflation, the Retail Prices Index (RPI), dropped to 3.2% from 3.4%. It is this index which is used to determine rail prices and the interest rates for student loans.

Pressure from rising oil prices and the cost of raw materials has meant that inflation has gone up. A statement from the ONS Head of Inflation, Mike Hardie, said: "Transport tickets and fuel, along with often erratic computer game prices, drove up costs for consumers."

The impact of rising inflation is mainly on earnings. Average earnings are still growing – 2.7% for May to June – but this is a slowdown from 2.8% before that. Pay growth is also slowing, down at 2.4% from 2.5% over the same period. For earnings and wage growth to be slowing down when only just holding out ahead of inflation is concerning, especially with high prices eroding spending power. The concern for market analysts is that consumer spending will suffer as the public holds off spending.

Samuel Tombs, the Chief UK economist at Pantheon Macroeconomics, told The Independent: “Consumers’ confidence still is weak, suggesting that few people will take a risk and move from their current jobs to slightly higher paying positions. In addition, the recent weakness of business investment suggests that productivity growth likely won’t step up soon and support higher wages.”

Tombs was more positive on Twitter though, charting his prediction for lower inflation in the next year.

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The price of gold is currently £932.76 per ounce, with safe-haven gold demand still subdued by the strong US Dollar. Traditionally gold has been a very good inflation hedge, so demand and prices could begin to rise again should the Dollar’s dominance begin to subside.

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