Higher clothing prices keep inflation up

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The Independent Online

Inflation remained stubbornly high at 3.1% today after figures showed the first year-on-year hike in clothing prices for 18 years.

In a further sign that the era of cheap fashion is coming to an end, the Office for National Statistics (ONS) reported the annual rate of clothing and footwear inflation was 0.9% in September, the first rise since 1992.

On a monthly basis, prices rose by 6.4% between August and September, the largest increase for that period since records began.

The higher costs offset a decline in air fares and petrol prices and saw the overall Consumer Prices Index (CPI) rate of inflation hold at 3.1% in September - unchanged now for three months and well above the Bank of England's 2% target.

The latest figures triggered some good news for pensioners as the Retail Prices Index (RPI) measure of inflation at 4.6% signalled a rise of around £4.49 a week in the basic state pension from next April, compared with last year's £2.40 hike.

Employment benefits, such as Jobseeker's Allowance and income support, will be based on CPI from next April, as will tax credits and all public service pensions.

The monthly hike in clothing prices was driven by women's outerwear - such as winter coats - where prices increased with the new autumn season, as summer sales ended, the ONS said.

Retailers such as Primark, which sells £2 T-shirts and five pairs of socks for £2, have made a name for themselves by offering cheap clothing.

Sarah Peters, senior retail analyst at Verdict, said the increase in clothing bills was down to the weakness of the pound, increased cotton prices - which are now at a 15 year high - and higher transport costs.

She said: "Retailers have already squeezed margins as much as they can and they have little option now but to put prices up.

"Moreover, prices are likely to increase even more over the next six months due to the VAT increase to 20%."

Ms Peters said rising wages in traditionally cheaper labour markets - such as China and India - were also having a slight impact on prices and would become a more prominent factor in the months ahead.

Jonathan Loynes, chief European economist at Capital Economics, said the rise in clothing prices may also have reflected a desire by retailers to soften the transition to 20% VAT in the new year.

With food prices expected to continue to rise, the latest figures heap more pressure on policymakers at the Bank of England as they decide whether to keep interest rates at 0.5%.

Mr Loynes added: "The stubbornness of inflation is certainly not making life easy for the Bank of England but it is unlikely to prevent the Monetary Policy Committee from implementing more quantitative easing if, as looks likely, it decides that the economy requires more support."

Supermarket shoppers paid more for their meat and fruit in September, which lifted the overall cost of food bills by 0.1%. But the ONS said this compared with a drop in prices a year ago, when supermarkets were rolling out sales across a range of products.

The ONS said bread and cereal prices did not show any significant movement, which suggested the impact of droughts in Russia and the country's subsequent ban on grain exports was yet to filter through to British prices.

Air passengers paid less for fares in September, which fell by 27.8% between August and September - compared with a 23% drop a year ago. The largest effects came from long-haul flights, the ONS said.

An overall fall of 0.8% in petrol prices, compared with a 2.3% hike a year ago, reflected a fall of 1.1p per litre in the price of petrol this year, the ONS said.