Inflation rate expected to rise for first time since November
INFLATION is predicted to rise for the first time since November when official figures are released today, hitting consumers in the pocket.
Economists forecast that the Consumer Prices Index came in at 2.5 per cent last month, up from 2.4 per cent in June.
The July Retail Prices Index (RPI), a separate measure of inflation, is tipped to be 3.5 per cent, which is likely to lead to a hike in rail fares.
The Department for Transport will use RPI to set its yearly increase in train fares, and commuters have been warned that the July rate could increase the annual cost of getting to work be more than £150.
Russ Mould, investment director at AJ Bell, said inflation could be nudged higher by a weaker pound, and higher petrol pump prices.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said that inflation was also likely boosted by price rises on core goods, which were held back in June as retailers kicked off their summer sales early.
"But the contribution from electricity and natural gas should hold steady, while services inflation should remain weak," he added.
However, he cautioned that the results will depend on when the Office for National Statistics collected the data, because discounting will have increased during the month.
The update comes after ONS wage data showed average earnings rose by 2.4 per cent in June, down from an increase of 2.5 per cent in the previous month, meaning that consumers could be denied another lift to their discretionary spending.
In the prior month, inflation held steady at 2.4 per cent, meaning consumers were afforded more money to spend on holidays, travel and other non-essential goods.
Speaking at the time Danske Bank chief economist, Conor Lambe said he expected the annual inflation rate in 2018 to be lower than last year.
"The impact of the post-referendum sterling depreciation is gradually fading, which is exerting downward pressure on the inflation rate. However, there is upward pressure coming from higher oil prices.
“That being the case, the numbers could fluctuate a little over the next few months but the annual rate of inflation for 2018 as a whole is expected to be lower than observed last year.”
The expected rise in inflation follows a decision by the Bank of England's policymakers to raise interest rates to the highest level since 2009, putting more pressure on the cost of borrowing.
However, Bank of England governor Mark Carney has said any future rises will be limited, and spread over a long period, suggesting the central bank intends to soften any hit to borrowers.