Inflation remains unchanged as air fares offset petrol price falls

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Andrew Feinberg

White House Correspondent

UK inflation remained unchanged at 2.2% last month but price pressures picked up pace in the key services sector as air fares jumped higher, according to official figures.

The latest data from the Office for National Statistics (ONS) showed Consumer Prices Index (CPI) inflation has remained above the 2% target for the second month in a row, after rising for the first time this year in July.

The ONS said services sector inflation jumped to 5.6% in August from 5.2% in July as air fares rose across European routes, which offset falls in prices at petrol pumps.

Experts said the figures reinforce expectations that the Bank of England will hold rates at 5% when it decides on Thursday.

Grant Fitzner, chief economist at the ONS, said: “Inflation held steady in August as various price fluctuations offset each other.

“The main movements came from air fares, in particular to European destinations, which showed a large monthly rise, following a fall this time last year.

“This was offset by lower prices at the pump as well as falling costs at restaurants and hotels.

“Also, the prices of shop-bought alcohol fell slightly this month, but rose at the same time last year.”

While CPI is below recent forecasts by the Bank of England, inflation is predicted to edge further above the 2% target towards the end of the year, leaving policymakers in no rush to cut rates, according to economists.

The rise back up in services inflation comes after an encouraging drop in July, also signalling that underlying price pressures remain in the economy.

Monica George Michail, at the National Institute of Economic and Social Research (Niesr), said: “Given that inflation is set to gently rise towards the end of the year, and that underlying inflation remains elevated, this reduces chances of a rate cut tomorrow, and new developments will be closely monitored by the Monetary Policy Committee.”

Darren Jones, Chief Secretary to the Treasury, said: “Years of sky-high inflation have taken their toll; and prices are still much higher than four years ago.

“So, while more manageable inflation is welcome, we know that millions of families across Britain are struggling, which is why we are determined to fix the foundations of our economy.”

The ONS data revealed that air fares soared by more than a fifth – 22.2% – between July and August, having fallen a year earlier.

The ONS said: “Fares usually rise between these months, but this was the second largest such rise since the monthly collection of prices began in 2001.”

But motorists enjoyed further respite on the forecourts, with the average price of petrol standing at 142.3p a litre last month, down from 148.5p a litre a year ago.

Jake Finney, economist at PwC, said the “Taylor Swift effect” may be partly behind the more than doubling in cinemas, theatres and concerts price inflation, which jumped from 4.4% to 9.2% last month, with August seeing the last of her UK dates for the Eras tour.

He added the latest data overall “suggests that a September rate cut is unlikely”.

He said: “However, we expect that the latest inflation data will do little to dissuade the Bank from cutting in November, given that headline and services inflation are both tracking lower than their latest externally published forecasts.”

The latest data also showed the CPI measure of inflation including housing costs (CPIH) remained unchanged at 3.1% in August, while the Retail Prices Index (RPI), which measures a representative group of retail goods and services, fell back to 3.5% from 3.6% in July.