Inflation rose to 1.9% in June, up from 1.5% in May fuelled by higher clothing, food & drink and air transport costs, according to the Office for National Statistics. Clothing and footwear costs contributed almost half of the monthly increase.
Economists had expected the index to rise to 1.6% this month, but the 0.4 percentage point rise represents the largest monthly increase since October 2012.
The increase takes CPI inflation back to the level seen this January, though it remains well below the average level of 2.5% seen in 2013 and under the Bank of England’s 2% target.
Sterling rose from $1.707 to above $1.714 following the release of the data, subdued inflation having been one of the factors cited as a reason for the Bank of England not to rush into a base rate rise.
‘With inflation almost hitting the Bank of England’s 2% target, the housing market booming, the economy growing with no signs of momentum being lost and unemployment plummeting, the case for higher interest rates is building,’ said Chris Williamson, chief economist at Markit.
But Capital Economics said there are “compelling reasons” for inflation to ease again over the coming months.
“The downward pressure on CPI inflation should intensify over the coming months. Given the fairly long time lags involved, the full impact of sterling’s 12% trade-weighted appreciation over the last year has not been felt yet,” said UK economist Samuel Tombs.
“The continued weakness of producer output price inflation (output prices fell by a monthly 0.2% in June and were just 0.2% higher than a year ago) also suggests on the basis of past form that core goods inflation has further to fall. What’s more, sharp falls in wholesale electricity and gas prices this year suggest that utility bills might not rise this winter.”
ADM strategist Marc Ostwald said the rise of clothing costs stands “in complete contrast to the BRC shop price measure, where clothing stood -13% year on year – this is doubtless a data collection timing effect (i.e. summer sales discounts were not captured), which implies a sharp correction lower in July CPI.”
