UK inflation rate continues to rise

The UK inflation rate is nearly double that of the Bank of England’s target rate as inflation on the consumer price index (CPI) increased from 3.3 percent in May to 3.8 percent last month, exceeding analysts expectations of 3.6 percent. It is the third month in a row that inflation figures are higher than forecasts.

The rise of the annual inflation rate was caused by large increases in food and fuel as meat, fruit and cereal prices pushed inflation above 9 percent, whilst inflation on the broader retail price index (RPI) measure, which includes housing costs, rose to 4.6 percent.

The greatest rise was seen from non-alcoholic beverages which rose 2.1 percent on the month adding 0.18 percentage points to the annual inflation rate, although clothing and footwear prices, have seen their greatest fall since 2002 due to weak consumer demand.

The CPI reading for services inflation rose by 0.1 percent to 3.9 per but core inflation increased from1.5 percent to 1.6 percent. Andrew Sentence, a BoE policymaker, said that CPI inflation is heading for 5 percent-plus late this year.

Policymakers have kept interest rates at 5 percent as UK government notes rose, with the yield on the two-year gilt down to 4.84 percent.

Worryingly RPI inflation, which forms the basis for most wage deals, jumped to 4.6 percent.

Story link: UK inflation rate continues to rise