Rise in price of computer games puts up inflation

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Another interest rate increase could be on the way after inflation unexpectedly rose last month to reach its joint highest level since Labour came to power nine years ago.

The consumer price index rose 2.5 per cent in the year to August, up from 2.4 per cent in July, marking the fourth consecutive month inflation has been above the Bank of England's 2 per cent target, and the third time it has hit 2.5 per cent since 1997.

The pick-up in inflation was mainly caused by increases in the price of games and toys, in particular computer games. Rising energy bills also pushed up inflation, with gas prices running at their highest levels since 1963, while petrol prices rose by less than last year. The end of the summer sales also brought higher prices for furniture and clothes.

The figures spelled bad news for homeowners, with analysts predicting interest rates will hit 5 per cent by November.

Inflation is set to rise further in September with the last of the summer sales. Utility bills are also going up again, with Powergen and Centrica, the owner of British Gas, putting up prices recently. The effect of higher mortgage costs after August's interest rate increase will also come through this month as most lenders waited until 1 September to raiserates. A 150 per cent rise in university tuition fees will feed through to the figures in October, with the maximum annual student fee rising from £1,175 to £3,000.

The Bank's governor, Mervyn King, has warned there is a 50/50 chance inflation would spike above 3 per cent in the next six months. Philip Shaw, at Investec, said: "Inflation appears to be coming in above the Bank's August forecasts. We continue to see the Bank hiking rates to 5 per cent in November." The retail price index, which is used as a benchmark for wage claims, was up 3.4 per cent in August, while RPIX, which excludes mortgage interest payments, climbed to a 10-year high of 3.3 per cent. The long-standing gap between goods and services inflation has narrowed further as goods prices are driven higher by energy and food prices.

Blair reveals surprise fall in jobless a day early

Tony Blair revealed yesterday that unemployment has fallen for the first time in months, against City expectations of another rise. His comments at the Trades Union Congress conference came before today's release of official figures for August and drew sharp criticism from opposition parties.

"Tomorrow we will probably see for the first time in some months a fall again in unemployment," the Prime Minister said.

The shadow Chancellor, George Osborne, said: "Tony Blair has made an irresponsible gaffe. Important economic data should not be blurted out at meetings with trade unionists."

The Liberal Democrat Treasury spokesman, Vince Cable, accused Mr Blair of "naivety on economic policy matters". He said: "If there is a genuine change in trend, it should have been released in the correct way."