Business

July inflation steady as fuel prices fall

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The UK's key measure of inflation was unchanged in July, as falling fuel prices offset a rise in the cost of food, clothing and household goods.

Consumer Prices Index (CPI) inflation remained at 2.6%, the figures showed.

However, July's Retail Prices Index (RPI) measure, which the government uses to calculate the rise in regulated rail fares, rose from 3.5% to 3.6%.

The fall in sterling after the Brexit referendum has been the main impetus for rising prices over the last year.

Factory prices

Over the last year sterling has dropped 14% against the currencies that the UK does most of its trade with. That has made imported goods more expensive for businesses and consumers.

However, more than a year on from the the sharp fall in the pound imported goods are now not much more expensive than they were a year ago.

Figures also released on Tuesday by the the Office for National Statistics (ONS) show that input prices, the prices of goods coming into factories many of them from abroad, rose by 6% in July, down from 10% in June.

The prices of goods coming out of factory gates rose at a slightly slower rate too, 3.2% down from 3.3%.

The CPI measure dropped unexpectedly to 2.6% in June, down from 2.9% in May.

Food prices up

But the inflationary pressures have not entirely gone away.

Food prices are still rising, as are the costs of clothing and household goods. The price comparison website uSwitch estimates utility companies are expected to raise gas and electricity prices by between 7% and 10% this year.

The rise in rail fares will also feed into the inflationary pressures

Earlier this month in the Bank of England's inflation report governor Mark Carney said: "As the effect of rising import prices gradually diminishes, domestic inflationary pressures will gradually pick up."

Yael Selfin, chief economist at KPMG UK, said: "The slide in the value of the pound over the past year has put significant pressure on companies' margins. We have seen some of these costs passed on to consumers but there's likely to be more in the pipeline.

"The recent rise in the price of oil, the further weakness of the pound against the euro, along with a resilient economy, albeit growing at a slower pace, are all likely to encourage further rises to consumer prices."

She said that KPMG was predicting inflation to average about 2.6% over the next two years but with wages unlikely to keep pace with inflation, households will be poorer in real terms.

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