Food price rises expected to fuel inflation as wage growth lags behind

August 15 2017, 12.35amUpdated: August 15 2017, 9.51am
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The increasing cost of the shopping basket is expected to have contributed to a rise in inflation when figures are released later.

A rise in the overall cost of living is due to be shown in the latest round of official data, which is expected to show the Retail Price Index (RPI) hit 3.5% in July, in line with the figure seen in June.

Meanwhile rail passengers will discover how much more they will pay for their travel in the new year, as July’s figures are used to calculate any rise.

The Consumer Price Index measure of inflation was forecast to reach 2.7% last month, up from 2.6% in June, according to consensus figures.

Annual average weekly earnings data will be released on Wednesday and is expected to remain at 1.8% for the three months to July, the same rate for the three months to June.

Alan Clarke, head of European fixed income strategy at Scotiabank, is forecasting CPI to hit 2.8%, driven in part by rising price tags on food.

He said: ”Food price falls came to a fairly abrupt end in the aftermath of the Brexit vote, particularly on the back of the sharp fall in the GBP exchange rate.

”Indeed, food prices have risen for seven of the last eight months – with last month being the exception, showing a 0.2% month-on-month fall.

”Overall, we view last month’s downward adjustment in inflation as temporary and the peak in inflation is yet to be reached.”

The main downward pressure on the cost of living in June came from fuel, which saw the fourth consecutive month of falling prices, dropping 1.1% month on month.

Food was driving the upward pressure on everyday prices, with costs easing back by a smaller 0.3% in June compared with a 0.4% fall for the same month last year.

Andrew Goodwin, lead UK economist at Oxford Economics, said falling fuel prices will continue to weigh on the cost of living in July, keeping CPI at 2.6%.

He said: ”The weekly data from Department for Energy and Climate Change suggests petrol prices fell by more than 1% in July and, with fuel costs having risen by almost 1% in the corresponding period of last year, this will put further downward pressure on inflation in July.

”However, set against this, we will see upward pressure from energy prices, as EDF’s late-June hikes in gas and electricity bills hit the index.”

Despite the financial pressure, consumer spending has remained robust since the Brexit vote.

However, there is evidence suggesting households have been raiding money earmarked for savings, or using their credit cards, in order to keep spending.

The Bank of England expects inflation to peak at 3% by the autumn of this year.

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