Inflation ticks up in the wake of wage growth with energy bills and council tax to blame

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The Consumer Price Index (CPI) measure of inflation rose to 2.1% in July, up from 2% according to the Office for National Statistics (ONS).

The ONS’s alternative measure CPIH which includes housing costs, stood at exactly 2% for July.

The stats body says the biggest contributor to the CPIH measure of inflation in the last nine months has been housing and household services, rising by 1.9% on average. Chiefly to blame are gas and electric bills and council tax rate increases adding to household bills. See the graph below.

Source: ONS, 14 August 2019

Other big contributors were from the recreation and culture segment and restaurants and hotels segment where prices rose in the year to July 2019 by 2.4% and 3.1% respectively.

This comes in the wake of bumper wage growth reported yesterday of 3.9%.

Steven Cameron, pensions director at Aegon, comments: “The latest inflation rate of 2.1% pushes it above the Bank of England’s 2% target for the first time since April and as the scheduled Brexit day fast approaches, is a timely reminder of the potential for prices of goods and services to rise faster in future.

“Fortunately, yesterday’s figures from DWP also show a continued strong labour market, so working households are in a relatively good position to plan ahead and save for the future, especially if earnings increases continue to outstrip price inflation.

Mr Cameron however points out that as the measure of inflation is based on the costs of a specific basket of goods, how individual households will be impacted depends on how they spend their money and some will see their overall costs rising faster than others.

He says: “It’s fixed income pensioner households who are at greatest risks of accelerated price inflation. Those in retirement also spend their money on different things and if a disproportionate amount of their income is spent on the items that rise fastest, the effective pensioner inflation rate could be higher than that of workers.

“Anyone about to enter retirement needs to build this into their planning to maintain their standard of living whatever the rate of future price inflation.”

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