United Kingdom: Inflation rises again in August
September 12, 2017
Consumer prices rose 0.6% in August over the prior month, up from July’s flat reading. The increase in August was largely driven by higher prices for clothing and footwear, furniture, household equipment and maintenance, and communication.
Inflation in August picked up to 2.9% from 2.6% in July, overshooting analysts’ expectations and matching May’s multi-year high. Inflation is once again on the rise, after a brief lull in June and July that dampened expectations of an interest rate hike in the short term. Higher commodity prices and the depreciation of the pound since the EU referendum in June 2016 have generated inflationary pressures over the last year. Although the pound lost the most value soon after the vote, in many cases there has been a substantial time lag before firms have passed on higher import costs to consumers, as many companies had currency hedges in place until this year to protect them against exchange rate swings.
Looking ahead, inflation is likely to brush the 3.0% mark by the end of the year as the effects of the depreciation fully feed through to prices, before dipping slightly in 2018.
Annual average inflation increased from 1.9% in July to 2.1% in August.
Author: Oliver Reynolds, Economist