Shock rise in inflation set to hit commuters hard

Hard-hit rail commuters face a greater-than-expected 6.2% hike in average fares in the new year after official figures revealed a shock rise in the inflation rate today.

The retail prices index (RPI) figure for July, which is used to determine how much regulated rail fares including season and saver tickets are allowed to increase in 2013, rose to 3.2% from 2.8% the previous month, according to the Office for National Statistics.

The City had expected the rate to remain flat at 2.8%.

The average fare increase for England is calculated by adding 3% to RPI, meaning a hike of 6.2%, although some tickets can go up by a further five percentage points - or more than 11% - as long as they are balanced by cuts on other fares.

The greater-than-expected rise in RPI, which was accompanied by an increase in the closely watched consumer prices index (CPI) rate to 2.6% from 2.4%, was driven by hefty hikes in air fares, while there were fewer discounts from retailers who had already slashed prices in June to shift stock amid the wash-out weather.

The planned hike in average regulated ticket prices, which follow a similar increase for 2012, will mean that fares have risen by more than inflation for 10 years in a row.

Governments in Wales and Scotland have indicated that regulated fares are likely to go up by one percentage point above RPI.

Unions, transport campaigners and rail passenger groups staged a day of action at railway stations across the country today to protest against the "massive" hikes.

Stephen Joseph, chief executive of the Campaign for Better Transport, said the increases are "untenable" because fares will rise three times faster than salaries next year, which it claimed will damage the economic recovery.

And unions said tens of thousands of rail commuters will have to pay more than £5,000 a year for their season tickets after the new rises come into effect.

Meanwhile, today's rise in the rate of CPI brings to an end three months of falls, intensifying the squeeze on struggling families.

The ONS said air fares, which are highly seasonal, rose 21.7% between June and July - the largest increase since 2004.

Travel companies have recently reported an increase in demand for foreign holidays as people look to escape the wet start to the British summer, while there have been anecdotal reports of people leaving London to escape the Olympics.

And July saw the record smallest monthly fall in prices in footwear and clothing prices after retailers brought forward their summer sales to June.

A Treasury spokesman said: "Inflation has halved since its peak in September but any increase is disappointing.

"The Government knows how tough things are for families at the moment and that is why we have reduced income tax, and frozen both council tax and fuel duty.

July's rise in inflation comes just weeks after the Bank of England forecast that CPI will return to its 2% target by the end of the year, earlier than previously expected.

Another acceleration in the cost of living is a worry because economists had hoped easing inflation would encourage under-pressure consumers to start spending again, and help lift the economy out of the longest double-dip recession for more than 50 years.

And there are further concerns about the outlook for inflation, with oil prices back on the rise amid Middle East tensions and a severe drought in the US threatening to push up grain and meat prices.

But Vicky Redwood, UK economist at Capital Economics, said July's rise was likely to be only a "temporary blip" and she expects CPI to drop below its 2% target within the next three months, while the sluggish economy will keep inflation "very low" next year.

However, Colin Edwards, an economist at the Centre for Economics and Business Research, warned: "While a weakening global economic outlook may bring down inflation, real incomes are likely to grow sluggishly at best over 2013, constraining consumer demand in the UK and making a return to robust economic growth all the more difficult."

Meanwhile, shadow transport secretary Maria Eagle said the planned increase in rail fares would exacerbate the squeeze on families.

She said: "This is a Government that puts the wrong people first. David Cameron's decision to side with the powerful private train operators against commuters and passengers shows he is desperately out of touch with the cost-of-living crisis facing many hard-working families."

She added that Labour would ban train operating companies from increasing fares above a strict cap of 1% above inflation.

And Bob Crow, leader of the Rail, Maritime and Transport (RMT) union, said passengers would be "rightly angry" when they find out the full extent of the fare increases and added that there was an overwhelming case for renationalising the railways.

Michael Roberts, chief executive of the Association of Train Operating Companies, said: "It has been Government policy during the past eight years for passengers to pay a larger share of the cost of operating the railways and to focus taxpayers' money on investing in longer term improvements to the network.

"Any flexibility train companies have within the rules is to maximise revenue for the Government."

PA