Food prices drive up retail inflation to 3.36 per cent in August

Food prices drive up retail inflation to 3.36 per cent in August

Consumer prices climbed 2.9% year-over-year in August, faster than the 2.6% rise in July. To top it off, the retail price index for August showed a 3.9% year on year increase, up from 3.6% last month and above expectation.

The Consumer Price Index including owner-occupiers' housing costs (CPIH) was 2.7 per cent in August, up from 2.6 per cent the month before.

Input prices - the costs of energy and materials that go into the production of goods made in the United Kingdom - rose at 7.6% in August, up from 6.2% in July, but still a long way of this year's peak of 19.9% in January.

The output rose by 1.2 per cent as compared to the same month of past year.

While stats have been on the lighter side, the key driver for the markets through the start of the week remains North Korea, as the U.S administration reportedly watered down its proposal on additional sanctions on North Korea, though even what many call a compromise is expected to hurt the North Korean economy.

So-called core inflation, which strips out volatile prices for food and energy, rose to 2.7%, the ONS said, the highest since 2011.

The squeeze on household finances in the United Kingdom intensified in August as inflation jumped more than expected, far outpacing rises in pay packets.

Last month the BoE said it expected United Kingdom inflation to reach 3.0% by October, due in large part to the steep drop in the pound since last June's Brexit vote.

Ben Brettell, senior economist at Hargreaves Lansdown, added: "It looks likely that inflation will fall back in the coming months, as the effect of Brexit-induced sterling weakness falls out of the year-on-year calculation".

Previously, the BOE said it expected inflation to hit 3% in October, something Tuesday's data suggest could happen in September.

Economists do not expect a rate hike this time given the policymakers' concern over the slowing economy.

"Indeed it's possible that 2.9% will be the highest we see in the current cycle". The strength of the common currency, which has now rallied by around 15% since the beginning of the year, is providing a major headache to the European Central Bank as it gears up to tighten its monetary policy for the first time in six years.

Sterling's gains in response to the higher than forecast inflation figures gives a clear indication of investor hopes ahead of Thursday's BoE meeting.

The latest inflation figure could put further pressure on the Bank of England to consider a rise in interest rates, as it has an inflation target of 2%.

Furthermore, producer output prices - also known as factory gate inflation - rose to the highest level since May, putting pressure on manufacturers to raise their prices.

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