Soaring air fares stop inflation falling back towards its 2% target rate
Rocketing airfares helped prevent the headline rate of inflation falling back to its 2% target rate last month.
The Office for National Statistics (ONS) said the Consumer Prices Index (CPI) rose by 2.2%, in line with City expectations, but still slightly ahead of the Bank of England’s 2% “goldilocks” rate.
However, the closely watched services sector CPI - seen as a key measure of domestic inflation - increased from 5.7% in July to 5.9% in August as air fares soared far more than usual over the summer months, particularly on European routes.
Air fares rose by 22.2% between July and August, the second largest such rise since the monthly collection of prices began in 2001.
Core inflation, which excludes more volatile components such as energy and food prices, also rose, from 4.1% to 4.3%.
That will make it less likely that the Bank will cut interest rates again tomorrow.
ONS Chief Economist Grant Fitzner said: “Inflation held steady in August as various price fluctuations offset each other.
“The main movements came from air fares, in particular to European destinations, which showed a large monthly rise, following a fall this time last year.
“This was offset by lower prices at the pump as well as falling costs at restaurants and hotels. Also, the prices of shop bought alcohol fell slightly this month,but rose at the same time last year.
“Following two months of growth, raw material prices fell, driven by lower crude oil prices, while the increase in the cost of goods leaving factories slowed again.”
Darren Jones, Chief Secretary to the Treasury said: “Years of sky-high inflation have taken their toll; and prices are still much higher than four years ago. So, while more manageable inflation is welcome, we know that millions of families across Britain are struggling, which is why we are determined to fix the foundations of our economy so we can rebuild Britain and make every part of the country better off.”
Kyle Chapman, FX Markets Analyst at Ballinger Group, said: “UK inflation holds at 2.2%, but underlying pressures remain too sticky for a rate cut this week.
“UK CPI inflation held at 2.2% in August, but upticks in services inflation (5.6%) and core inflation (3.6%) likely cement a rate hold at tomorrow's Bank of England policy decision.”
Matthew Chapman, associate partner at McKinsey & Company said:. “Keeping inflation within a hair's breadth of two percent istricky. While goods inflation has been in negative territory since April, high levels of services inflation have caused the overall CPI to maintain above the 2% target.
“Price increases in everyday essentials has remained slow. While food and non-alcoholic beverage price increases have declined to 1.3%, the cost of living is still top of mind for consumers. Higher levels of service inflation (5.6%)- including hotels, package holidays and airfares - has contributed to the overall CPI flatlining at 2.2%. However, consumers areshowing a lower intent to spend in these categories in the next 3 months, following the summer, which could impact services inflation in the next few months.”