Pressure on families as inflation rises again

The government’s targeted measure of inflation – the Consumer Prices Index (CPI) – rose 0.1 per cent to 4.5 per cent in August, with higher utility bills fuelling the increase.

The underlying rate of inflation, measured by the Retail Prices Index (RPI) – which includes housing costs such as mortgage payments and council tax – continued to pull ahead, rising from 5 per cent in July to 5.3 per cent last month.

The figures, published by the Office for National Statistics (ONS), are in line with economic forecasts, with the Bank of England expecting CPI to peak at 5 per cent later this year before falling back to the government’s target rate of 2 per cent over the following two years, as the effects of January’s rise in VAT works its way out of the calculations.

Energy prices

Energy prices are the biggest current cause of inflation, with Scottish Power and British Gas raising their gas tariffs by 19 and 18 per cent respectively in August – alongside big increases in electricity charges. With Scottish and Southern Energy and E.ON both raising their prices this month and Npower in October, those effects are likely to continue for some time yet.

Today’s figures revealed that housing, water, electricity and gas prices combined rose by 5.1 per cent year-on-year – the highest annual increase since July 2009 – while clothing and footwear saw a 4 per cent rise, its biggest annual increase since current records began in 1997.

There were also record increases in furniture, household equipment and maintenance charges – 5.8 per cent – and restaurant and hotel prices – 4.6 per cent.

A recent survey of private sector pay put average rises at 2.5 per cent, while public sector pay is in the middle of a two-year freeze.

The only price falls came in computer games and games consoles, while air fares, which rose by 11 per cent on the month, also had a downward effect on the figures because they had risen by 16 per cent at the same time last year.