- REUTERS/Neil Hall
LONDON – Inflation in August jumped to its joint-highest level since the vote to leave the European Union last year, as Brexit continues to push up the cost of living in the UK.
The UK’s Consumer Prices Index (CPI) inflation rate – the key measure of inflation – was 2.9% in August, up from 2.6% in the previous month, according to the Office for National Statistics.
Inflation had been expected to climb to 2.8% from the 2.6% level seen in both June and July, according to economists polled before the release, but just exceeded those expectations.
CPI measures the weighted average of prices of a basket of goods and services, such as food, transportation, and medical care.
CPIH, a measure which includes costs associated with maintaining a home – and which the ONS cites as a more useful indicator of living costs than CPI – was at 2.7%, also up from 2.6% at the last reading.
“Rising prices for clothing and motor fuels were the main contributors to the increase in the rate between July and August 2017,” the ONS said in a statement.
“Clothing prices rising faster than last year, along with a hike in the cost of petrol, helped nudge inflation upwards. Conversely, these effects were partially offset by airfares, which rose more slowly than during last year’s summer holidays,” Mike Prestwood, the ONS’ head of inflation said.
“The costs of raw materials and goods leaving factories also increased slightly, mainly due to oil and fuel prices,” he added.
The chart below illustrates the sharp rise in inflation following last year’s Brexit vote. OOH represents owner occupiers’ housing costs, which measures the cost of owning, maintaining, and living in one’s own home:
The sharp fall in the value of the pound following the UK’s vote to leave the EU last year has raised the cost of imports and pushed up the rate of inflation. Inflation is expected to peak at more than 3% at some point in 2017, according to the latest Bank of England forecasts.
Inflation’s impact on the British economy is being exacerbated by the fact that real wages are actually growing more slowly than prices are rising, meaning that the average Brit is actually seeing the amount of money they have to spend decrease.
The ONS’ latest wage growth numbers will be released on Wednesday, helping to create a fuller picture of just how intense the squeeze on Britain’s consumers is right now.
The pound jumped on the news of inflation’s rise, as market participants see an increased probability of the Bank of England hiking interest rates in the coming months.
As of 9.45 a.m. BST (4.45 a.m. ET), the pound has climbed by close to 0.8% to 1.3268 against the dollar, as the chart below illustrates:
- Markets Insider