Inflation jumps half-per-cent

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Indy Politics

Bank of England policymakers were dealt a fresh blow today as surging food and petrol prices pushed inflation to an even worse-than-expected record.

The Consumer Prices Index (CPI) jumped to 3.8 per cent last month from 3.3 per cent - higher than expected by City economists and almost double the Bank's 2 per cent target - according to the Office for National Statistics (ONS).

The Bank's official inflation benchmark is now at its highest level since CPI records began in January 1997. Based on historical data prior to this, inflation was last higher in May 1992.

The worse-than-expected figures mean the Bank has less breathing space to cut interest rates despite mounting signs of economic slowdown, which have prompted fears over a recession.

A record rise in food prices was one of the main factors behind the inflation jump - highlighting the hikes faced by consumers in their weekly shopping bills.

June saw large increases in beef and pork sausage prices, as well as big hikes in the cost of rice, white bread, biscuits and frozen pizza. The cost of milk across a range of supermarkets has risen by around 10p for four pints and 4p for two pints, the ONS added.

Meanwhile, average petrol prices rose 5.3p a litre during the month to 117.6p thanks to surging oil prices, outstripping last year's smaller increases and adding to motorists' forecourt misery. Diesel also rose 7.3p last month compared with just 0.6p 12 months earlier.

Gas and electricity bills - which were unchanged in June but fell a year earlier - added to the inflation pressure.

There was no respite for those looking to escape the gloom with a holiday as package holiday costs rose this year.

The prices of computer games and DVDs also rose during the month, according to the ONS, despite falling clothing and footwear prices as desperate retailers sought to tempt in shoppers with even bigger price cuts.

The figures add to bad news for inflation-watchers yesterday when factory gate prices - a measure of how much manufacturers charge for their goods - rose 10 per cent in the year to June. This is the first double-digit annual rise for more than 20 years.

Today's data also showed the headline rate of Retail Prices Index inflation, which includes mortgage payments, rising to 4.6 per cent from 4.3 per cent over the month, the highest since March 2007.

The big increases in food, petrol and gas and electricity were partially offset by a lower increase in mortgage payments than last year and a downward impact from sliding property prices.



Paul Kenny, general secretary of the GMB union said: "The Government will pay a high price at the polls if it does not take more active steps to curb speculation in the oil market, which has hiked the price of everything, and take steps to dismantle the energy regulatory regime left by the Tories, which has delivered the highest electricity and gas prices in Europe."

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