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Inflation Exceeds Target

Inflation rose from 2.0 percent in June to 2.3 percent in July, which exceeds the Monetary Policy Committee’s target of just 2 percent, for the first time in over seven years, the target figure is set for the MPC by the chancellor.

Petrol prices were said to have played a major role with barrel prices at their highest since the Gulf war in the 90’s. Rising oil prices have also prompted an increase in other fuel costs as well. Electricity charges have risen by 9.4% and gas bills look to have risen by over 12%. Excluding the oil price hike, inflation still rose from 1.6% to 1.9%.

A wide range of items took a substantial increase by up to 2.3%. Service costs, such as household services have increased by 7%. Contrary to this goods prices are down. Clothing prices have fallen by 5%, with an overall of 40% over the last ten years. Oil prices are destined to rise, which may be enough to convince the Monetary Policy Committee to raise interest rates. On the other hand weak consumer spending could persuade the MPC to reduce rates, even though in inflation, in the medium term, is predicted to rise.

This is on the basis that slowing consumer demand will limit price increases through increased competitive pressures, and once the direct impact of higher oil prices falls out of the year on year comparisons, the inflation rate will fall back in line with the Bank of England's 2% target.