UK Inflation Surges to 3.8% in June

Consumer price inflation shot up even faster than expected last month, official data showed on Tuesday, with jumps in the cost of food and petrol taking the annual rate to nearly double the Bank of England’s target and leaving little prospect of near term cuts in interest rates.

Inflation on the consumer price index which the Bank targets jumped from 3.3 per cent in May to 3.8 per cent in June, outstripping expectations of a rise to 3.6 per cent. The Office for National Statistics said that was the highest since the series began in 1997, and the highest on a historical series since May 1992.

Mervyn King, the Bank’s governor, had already warned that record oil prices were likely to drive inflation above 4 per cent, but the latest data suggest that spike will come sooner, and be even more pronounced than policymakers had thought.

Big increases in food and fuel costs made the biggest contribution to the rise in the annual inflation rate. Higher meat, fruit and cereal prices helped send food inflation up to 9.5 per cent from May’s annual rate of 7.8 per cent.

The ONS said the average price of petrol had risen 5.3 pence per litre to 117.6 pence between May and June, while diesel prices had risen 7.1 pence per litre.

But the pick-up in inflation is not confined to areas most directly affected by soaring oil prices. The CPI reading for services inflation rose from 3.8 per cent to 3.9 per cent, and ‘core’ inflation - excluding food, energy and tobacco - edged up from 1.5 per cent to 1.6 per cent.

Inflation on the broader retail price index measure, which includes housing costs, rose from 4.3 per cent to 4.6 per cent

UK Inflation Surges to 3.8% in June, Financial Times
7/15/2008 6:42:02 AM