Inflation unchanged as rising food prices offset by falling hotel costs

13 September 2016

The Consumer Prices Index (CPI) rate of inflation rose by 0.6% in the year to August, figures released by the Office for National Statistics (ONS) reveal today.

This is unchanged from July.

While food prices and airfares are rising, hotel accommodation prices are falling, and there have been smaller increases in the prices of alcohol, clothing and footwear than a year ago.


Meanwhile, the Retail Prices Index (RPI) rate of inflation, which unlike CPI includes costs relating to housing, stood at 1.8% in the year to August - down from 1.9% in the year to July.

Ben Brettell, senior economist at Hargreaves Lansdown says: “Economists had been expecting inflation to rise for the third consecutive month in August, as retailers passed rising import costs on to consumers.

“However, the ONS data showed consumer price inflation remained at 0.6%. As yet the effect of the weaker pound on consumer prices appears muted.

“Forecasts suggest the drop in sterling will ultimately add around five percentage points to the Consumer Prices Index, but it’s as yet unclear whether that will come via a gradual uptick in the inflation rate over a couple of years, or a shorter, sharper bout of inflation over the coming months.”


Andy Scott, economist at HiFX, adds: “Following Sterling’s much more significant fall following the financial crisis in 2008 we saw a mixed picture in this regard as the economy went into reverse, forcing certain industries to absorb the cost rather than risk losing sales by raising their prices.

“In the post Brexit economy where there is already significant monetary support in place, with record low interest rates and another £70bn of quantitative easing from the Bank of England, there may be more confidence that demand would not drop significantly due to relatively small price increases.

“In this scenario, we would expect to see inflation rise above the Bank of England’s 2% target in the months ahead.”

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