UK Inflation Rises to 4.7%

UK CPI rose to 4.7 per cent in August, up from 4.4 per cent in July on the back of sharp rises in gas and electricity bills.

Mervyn King, the Bank of England governor, insisted on Tuesday that the Monetary Policy Committee has become firmer in its belief” that a period of economic weakness is needed to bring inflation back down.

Being more than 1 percentage point higher than the Bank’s 2 per cent inflation target, the sharp rise in the cost of living prompted the second letter of explanation from Mr King to Alistair Darling, the chancellor, in the recent period of high inflation.

The governor is required to write every three months for the period inflation diverges more than 1 percentage point from target.

In a letter that reflected current Bank thinking, Mr King highlighted the rises in food, oil and gas prices, which have pushed inflation to its highest rate for 16 years.

Other measures of inflation did not rise as quickly as the CPI in August. The retail prices index rose by 4.8 per cent year-on-year, down from 5.0 per cent in July reflecting falling house prices

The ONS said the single largest contribution to the rise in CPI in August came from an increase in average gas and electricity bills this year, and noted that two major energy suppliers raised their tariffs in late July.

But falling crude oil prices prevented the rise in inflation from being more severe than it might have been. The average price of petrol fell by 5.5p per litre between July and August this year to stand at 113.3p, a bigger fall than in the same month last year, knocking 0.1 percentage points off the inflation rate.

However, as a measure of how inflation is squeezing household budgets, the rise in CPI in August was also partly due to rises in the price of food and non-alcoholic drinks. In particular the price of goods such as breakfast cereals and pizza rose by more than last year, there was also a small affect from fruit.

UK Inflation Rises to 4.7%, Financial Times
9/16/2008 4:58:27 AM