Inflation took unexpected leap in June
Inflation took an unexpected leap in June, with the Consumer Prices Index rising to 1.9% from 1.5% in May, according to new figures from the Office for National Statistics.
The rise was largely due to price rises in the clothing, food and non-alcoholic drinks, and air transport markets.
Samuel Tombs, an economist with research firm Capital Economics, remains cautious in his outlook for inflation: "We maintain our longstanding forecast that CPI inflation could ease to about 1% by the end of this year and remain below the 2% target in 2015.
"Not only would this enable real earnings to finally stage a recovery, but it should also give the MPC scope to raise interest rates only gradually next year."
New inflation figures have prompted speculation about when the Bank of England might decide to finally raise interest rates.
Ben Brettell, senior economist at Hargreaves Lansdown, is conservative in his predictions for the eventual rate rise.
"Today's unexpected rise will raise speculation that the first interest rate rise could be around the corner. However, it's important to look at the overall trend rather than one month's number in isolation, as the monthly figures can be volatile, influenced by one-off factors."
The specific 'one-off factor' he refers to in this instance is a delay by clothing retailers to kick off their summer sales. Clothing prices usually fall in June when summer sales begin, but this year it seems that good weather may have caused retailers not to cut prices.
The Bank of England has a continuing target of keeping inflation to 2%.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).
The Consumer Price Index is the official measure of inflation adopted by the government to set its target. When commentators refer to changes in inflation, they’re actually referring to the CPI. In the June 2010 Budget, Chancellor announced the government’s intention to also use the CPI for the price indexation of benefits, tax credits and public sector pensions from April 2011. (See also Retail Prices Index).