UK annual inflation rose to more than twice the Bank of England’s official target during July, driven by the soaring cost of food, petrol and utility bills, official figures showed.

The Office for National Statistics said the annual CPI inflation rate rose by 4.4 percent last month, up on the 3.8 percent seen in June. The figure is the highest rise since official CPI data began being collated in 1997, but the ONS said based on an historical RPI data series this is the largest increase since April 1992 when it was 4.7 percent.

This increase beat analyst expectations for a 4.1 percent rise. The 0.6 percentage point increase from June’s 3.8 percent is the largest since CPI records began in 1997, and using the historically constructed data is the highest since the increase between March and April 1991.

Inflation has now been more than one percentage point above the BoE’s 2.0 percent target since May, and Mervyn King will be forced to write a second letter of explanation to Chancellor of the Exchequer Alistair Darling if CPI has not fallen below 3.0 percent during August.

The BoE’s Monetary Policy Committee will have had these figures to hand when they kept interest rates unchanged at 5.00 percent last week. Tomorrow the Bank will set out its projection for the future path of CPI when it publishes its quarterly Inflation Report.

The largest upward effect to annual CPI came from food and non-alcoholic beverages, which rose 12.3 percent on the year, the largest increase since the historical data series began in 1989. There were also large upward effects from transport costs, caused by the rising price of petrol, and utility bills.

The ONS also noted that there were small upward effects from furniture, household equipment, and maintenance and clothing and footwear, saying that the usual annual summer discounts were not as large as last year.

There was a small downward effect from recreation and culture, caused by the falling price of games and toys.

On a month-on-month basis, July CPI inflation was unchanged from June after rising 0.7 percent the previous month.

The underlying, or ‘core’ measure of CPI — which excludes energy, food, alcoholic beverages and tobacco — rose at an annual rate of 1.9 percent, the highest increase since June 2007. This compares to the 1.6 percent rise seen in June and beat analyst expectations for a 1.7 percent increase.

On a month-on-month basis, core CPI down 0.2 percent from June.

Elsewhere in today’s release, the statistics office said the annual rate of inflation (RPI) — which includes housing costs and is used in pensions payments and pay negotiations — rose to 5.0 pct from 4.6 pct in June, beating expectations for a 4.9 percent reading. This was the highest increase since July 1991.

The rise in the RPI rate was driven by food, motoring expenditure and fuel and light. This was partially offset by a fall in housing costs, caused by the drop in UK house prices.

On a monthly basis, RPI inflation fell 0.1 pct after rising 0.8 percent in June. This beat analyst expectations for a fall of 0.3 percent.

Meanwhile, the annual RPIX measure, which excludes mortgage payments, was up 5.3 percent, against 4.8 percent in June, the highest rise since May 1992. The increase was in line with analyst expectations.

The annual RPIX measure is well above the 2.5 pct annual rate that the BoE was previously charged with targeting and has been above that level since May 2006.

Month-on-month, RPIX fell 0.2 pct.

Looking ahead August looks set to bring a further rise in the annual inflation rate. The ONS said certain energy providers hiked their prices at the end of July and that clothing and furniture prices tend to pick up after the summer sales.

Source: http://www.afxnews.com

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