The Consumer Prices Index (CPI) measure of price inflation has accelerated again, rising to 4.4% for the year to July 2011.
This compares to 4.2% for the twelve months to June and was broadly in line with expectations.
The Office for National Statistics (ONS) also published the latest figures for Retail Prices Index (RPI) which shows RPI inflation unchanged at 5%.
Clothing and footwear made the biggest contribution to higher CPI inflation in July.
Energy prices and the higher VAT rate are also contributing to this higher price inflation.
If VAT had remained at 17.5% over the past three years, CPI inflation would have measured 2.8% rather than 4.4% for the year to July.
It is for this reason, as well as fear of damaging the economic recovery, that the Bank of England are unlikely to increase interest rates in the near future, despite this higher than target inflation.
CPI is the preferred government measure of inflation. With CPI remaining well above the government inflation target of 2%, Bank of England governor Mervyn King will need to write another letter of explanation to the chancellor.
The Bank of England remains confident that price inflation will return to target within the next couple of years. In the meantime, savers and consumers will still need to contend with this stubbornly high price inflation which is placing a squeeze on household budgets.
The July price inflation figures are particularly important because they are used to set regulated rail fares for the year ahead.
As a result of RPI inflation at 5%, commuters now face ticket price increases of around 8% next year.
Season ticket prices rises had been set at RPI + 1% but for the next three years they will be based on RPI + 3%.
With rail companies allowed to increase ticket prices by an additional 5% on top of this, assuming they pass on savings on other types of tickets, we could easily see double digit season ticket price increases in 2012.
Photo credit: Flickr/Kirstea
