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UK CPI inflation rate rises to 4.5% in August

The UK government's targeted rate of inflation rose in August, following higher prices for clothing and footwear, petrol and energy.

The rate of Consumer Prices Index (CPI) inflation rose to 4.5% from 4.4% in July, according to figures from the Office for National Statistics (ONS).

The Retail Prices Index (RPI) measure increased to 5.2% from 5%.

The Bank of England's target rate for CPI is 2%, and it expects inflation to return to target in the next two years.

The Bank argues that inflation is above target primarily because of the rise in VAT to 20% at the start of this year and past increases in global energy prices.

Separate figures from the ONS showed that the UK's trade deficit in goods and services was £4.45bn in August, unchanged from July.

The deficit on trade in goods was £8.92bn, while the surplus on services was £4.47bn.

The ONS said clothing and footwear had provided the biggest uplift to prices, with the 3.7% monthly increase a record between July and August.

Petrol and heating costs also contributed to higher overall prices.

Downward pressure from transport services, particularly the cost of flying, helped to offset some of these price rises.

Air fares rose by 11% on the month, but this was less than the record 16% rise seen a year earlier.

Recreation, particularly computer games and games consoles, saw prices fall between July and August.

Many analysts think the rate of CPI inflation may rise further, possibly touching 5%, before falling back towards the end of the year or at the beginning of next year.

"The rate is likely to move higher in coming months as utility bills continue to increase, putting further pressure on already-strained household budgets," said Chris Williamson, chief economist at Markit.

"However, inflation should start to fall by the end of the year, and drop significantly next year as those factors which have driven the rate up this year, such as January's hike in VAT from 17.5% to 20%, high oil and food prices and the depreciation of sterling all move into reverse."

Jonathan Loynes at Capital Economics said: "August's consumer prices figures brought further hope that the peak in inflation is close.

"We still expect inflation to be well below its 2% target at the end of next year."

Earlier this summer, three of the nine members of the Bank's Monetary Policy Committee were voting to increase interest rates in order to combat rising prices.

However, weaker economic growth in the UK and concerns about the strength of the global economic recovery meant that all nine members voted for rates to stay at a record low of 0.5% last month. Any increase in rates is seen by many as too risky given the fragile state of the economy.

Source : BBC News
www.bbc.co.uk/news/business-14895510

13 September 2011
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