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Business News

Surprise inflation rise catches out analysts

Inflation confounded the predictions of City economists by picking up in July.

Consumer price inflation rose to 2.6 per cent, up from 2.4 per cent in June, driven higher by a large increase in air fares, according to the Office for National Statistics (ONS).

Analysts had expected the CPI index to register another fall. The retail prices index, which includes housing costs, rose to 3.2 per cent, up from 2.8 per cent.

Air fares were up 21.7 per cent, representing the largest rise in June-July since 2004.

The index was also affected by this years' early start for the summer retail sales, with clothing and footwear prices registering their smallest fall between the two months since 1996.

Some analysts, however, said the uptick in price rises was likely to prove short lived.

"The increase was driven by temporary factors," said Vicky Redwood of Capital Economics.

"We still expect inflation to be back below its 2 per cent target within two or three months."

A separate survey from the ONS reported that national house prices rose by 2.3 per cent on the year in June, with prices in London up by 6.5 per cent.