Business

Inflation rate rises to six-month high as squeeze tightens on household finances

The UK inflation rate hit an unexpected six-month high in August, with higher clothing and transport prices ramping up the pressure on household finances.

THE UK inflation rate hit an unexpected six-month high in August, with higher clothing and transport prices ramping up the pressure on household finances.

Figures from the Office for National Statistics (ONS) show the Consumer Prices Index (CPI) rose to 2.7 per cent in August, compared to 2.5 per cent in July. The uplift was considered a surprise as economists had forrecast that the rate would edge lower to 2.4 per cent.

One of the largest upward drivers to price inflation was recreation and cultural services, which rose 2.2 per cent month on month. It impacted upon the likes of theatre-goers, who shelled out more for entertainment in August.

Transport services rose 4.6 per cent last month, driven by a 13.5 per cent hike in air fares and a 17.2 per cent rise in sea fares including international ferry routes.

Clothing also contributed to the upward move in August inflation, rising 3.3 per cent month-on-month, as shoppers hit the high street for autumn fashions.

ONS head of inflation Mike Hardie said: "Consumers paid more for theatre shows, sea fares and new season autumn clothing last month.

"However, mobile phone charges, and furniture and household goods had a downward effect on inflation."

Telephone equipment and services, which includes mobile phone charges, rose just 0.4 per cent on August, compared to a 1.7 per cent jump during the same period last year.

Price rises for household goods and furniture slowed, rising just 1.2 per cent compared to a 1.8 per cent spike a year earlier.

But shoppers were paying more more for groceries, with food prices rising 0.3 per cent month on month, and 2.1 per cent on a 12-month basis.

At the pumps, motorists were also facing higher fuel costs last month, with petrol up by 1.4p per litre on the month to 128.6p per litre.

Diesel also rose by 1.2p to 132.8p per litre. Prices for electricity, gas and other fuels were flat month-on-month.

Emma-Lou Montgomery, associate director for personal investing at Fidelity International, described the figures as a "body blow" to UK households.

"The latest figures mean that wage growth including bonuses (2.6 per cent) has once again fallen behind inflation and means that we are all getting progressively poorer again.

“To rub salt in the wounds there's also a distinct possibility that inflation could continue to climb as the oil price has recently crept up to over $80 a barrel, meaning we are likely to see prices at the petrol pumps start ticking up.

“And on top of this there's the ongoing uncertainty around the Brexit negotiations which could put an end to sterling's recent good run."

“This all means that UK households are likely to continue to feel the squeeze for the foreseeable future which means you really need to make sure you work your savings harder," Ms Montgomery added.

The Retail Prices Index (RPI), a separate measure of inflation, was 3.5 per cent last month, up from 3.2 per cent in July.

The Consumer Prices Index, including owner-occupiers' housing costs (CPIH) - the ONS's preferred measure of inflation - was 2.4 per cent in August, up from 2.3 per cent in July.

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