Inflation holds steady but food prices still rising – Daily Business

Inflation held steady at 3.8% in the 12 months to August, in line with economists’ expectations, but is likely to hit 4% this month.

Food inflation continues to hound the data, with prices rising by 5.1%, a fifth consecutive monthly increase.

Core CPI, which strips out energy and food, fell to 3.6%. However, the rate of price growth is well above the Bank of England’s 2% target and will almost certainly mean it will keep interest rates unchanged tomorrow.

Grant Fitzner, chief economist at the Office for National Statistics, said annual inflation was unchanged in August “as various price movements offset each other”.

Falling airfares were the main downward driver this month, he said, with prices rising less than a year ago following the large increase in July linked to the timing of the summer holidays.

“This was offset by a rise in prices at the pump and the cost of hotel accommodation falling less than this time last year.”

Martin Sartorius, principal economist at the CBI, said:  “Inflation remained elevated in August, consistent with the Bank of England’s projections.

“Higher food and energy prices, alongside the pass through from increased labour costs, are expected to keep price growth firm in the near term.   

“The Monetary Policy Committee looks set to keep interest rates unchanged tomorrow and, going forward, the MPC faces a delicate balance between signs of a cooling labour market and the risk of price pressures remaining stubbornly high.

“Its rate decision in November will likely hinge on whether future data give the MPC confidence that a further cut will not contribute to inflation staying elevated for longer.”

Luke Bartholomew, deputy chief economist, at Aberdeen Group said; “Despite being well ahead of the inflation target, the Bank of England will take some comfort in the fact that inflation came in largely as expected and because underlying inflation pressures look to be very slowly fading.

“However, food price growth remain elevated, which policymakers are concerned could cause wider inflation expectations to bleed higher. Inflation is likely to move a little higher in the near term, peaking around 4%.

“With that backdrop, there is little doubt that the Bank will keep interest rates on hold tomorrow.”