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Inflation rises to 4.5% for August

• High utility, transport and clothes costs behind rise
• CPI hits 4.5% for August, up from 4.4% in July
• RPI, used for wage negotiations, hits 5.2%

UK inflation rose last month as higher transport costs, utility bills and clothing prices all helped to push up the cost of living.

The consumer prices index rose to 4.5% in August, up from 4.4% in July, driven by the biggest annual rise in water and energy bills in more than two years. A surge in the cost of clothing and footware last month also drove CPI higher, according to data from the Office for National Statistics.

The retail prices index, which includes housing costs and is used for many pay negotiations and pension payments, hit 5.2% from 5% in July.

Clothing costs jumped in August, rising by 3.7% compared with July. This is the biggest month-on-month increase since the statistics body started tracking CPI changes in 1997, and reflects soaring cotton prices. This pushed the annual increase in clothing and footware costs to 4%, another post-1997 high.

“The largest upward effect came from women’s outerwear, where prices rose at the start of the autumn season,” the ONS said.

Colin Ellis, chief economist at the British Private Equity and Venture Capital Association, suggested that “savvy retailers” had looked to profit from the wetter-than-usual summer.

Housing, water and energy costs were 5.1% higher last month than in August 2010, the highest since July 2009.

City economists, who generally expected CPI to hit 4.5% in August, believe the rate of inflation will keep rising through 2011.

“There remains a very real possibility that consumer price inflation will hit 5.0% in the near term as more utility price hikes kick in and food prices remain elevated,” said Howard Archer, chief UK economist at IHS Global Insight. “However, consumer price inflation will hopefully start retreating late this year and then fall back markedly in 2012.”

Higher fuel prices also pushed up transport costs, which were 7.4% higher than a year ago.

Despite inflation being more than double the Bank of England’s 2% target, there is little sign that interest rates will rise any time soon. Instead, an increase in the Bank’s quantitative easing programme, currently £200bn, is seen as more likely – although the monetary policy committee resisted increasing QE at its last meeting.

“Some MPC members will be looking at this figure and it will reinforce their beliefs that inflation is too high for further asset purchases. While some will disregard this figure in the hope that prices moderate,” said Jeremy Cook, chief economist at foreign exchange company World First. “One thing we can be sure of is that the consumer will remain ‘under the cosh’, as wages are not increasing at anywhere near this rate.” © 2011 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds