U.K. inflation slowed from a 14-month high in July, led by airfares and summer discounting at clothing stores.
Consumer prices rose 2.8 percent from a year earlier, compared with 2.9 percent in June, the Office for National Statistics said in London today. That matched the median forecast of 35 economists in a Bloomberg News survey. A separate report showed annual input-price inflation accelerated to 5 percent, the fastest since March 2012, boosted by oil prices.
The Bank of England, which targets a 2 percent inflation rate, forecasts that consumer-price growth will remain round the current level for a number of months before easing. While it introduced forward guidance last week to help secure the economic recovery, it said price stability and the inflation goal remain its priority.
“Consumer-price inflation may yet touch 3 percent in the near term, but it should start heading gradually down toward the end of the year,” Howard Archer, an economist at IHS Global Insight in London, said before the data were released. “Much will clearly depend on oil-price developments.”
The pound erased its decline against the dollar after the data were published and was trading at $1.5462 as of 9:31 a.m. London time, little changed on the day. The yield on the benchmark 10-year U.K. government bond rose 3 basis points to 2.5 percent.
The largest downward contribution to the annual inflation rate in July came from airfares and clothing and footwear prices. The statistics office said summer discounting by clothing stores started earlier in 2012 than this year due to poor weather. Recreation and culture also had a downward impact.
The largest upward effect on the annual rate was from gasoline prices. From the previous month, overall consumer prices were unchanged in July.
Core inflation, which excludes food, alcohol, energy and tobacco, slowed to 2 percent last month from 2.3 percent in June, today’s report showed.
Retail-price inflation, used in wage talks and as a basis for the inflation-linked bond market, eased to 3.1 percent from 3.3 percent. Excluding mortgage interest payments, inflation by that measure was 3.2 percent, down from 3.3 percent.
BOE Governor Mark Carney linked the forward guidance on interest rates to a 7 percent unemployment threshold. The jobless rate was probably 7.8 percent in the second quarter, economists said before a report tomorrow. The guidance has three conditions that will void it, including two linked to price stability.
In a separate report today, the statistics office said that input prices increased 1.1 percent in July from June. From a year earlier, crude oil prices rose 9.1 percent, it said.
Factory-gate prices increased 0.2 percent in July from June and were up 2.1 percent from a year earlier. Core output prices rose 0.1 percent versus the previous month and 1.1 percent compared with July 2012.
In another report, the ONS said annual U.K. house-price inflation was 3.1 percent in June, up from 2.9 percent in May. That’s the biggest increase since December and lifts price levels to the highest since mid-2008. In London, prices increased 8.1 percent in July from a year earlier.
To contact the reporter on this story: Scott Hamilton in London at firstname.lastname@example.org
To contact the editor responsible for this story: Craig Stirling at email@example.com