UK Cost Of Living Hits 2.9% As CPI Rises

UK Cost Of Living Hits 2.9% As CPI Rises

UK inflation jumped to 2.9% in June, from 2.7% in May, according to the latest figures from the Office of National Statistics.

Although the Consumer Price Index (CPI) cost of living hit a 14-month high, it was just below the 3% level predicted by the markets.

Higher inflation is confirmation that fuel and clothing costs more now than 12 months ago.

The brakes were applied by falls in the annual inflation rate for food and air fares.

The Retail Price Index (RPI) also rose – from 3.1% in May to 3.3% in June.

Eurozone inflation up

In comparison, inflation rates in the Eurozone rose from 1.4% in May to 1.6% in June. The year-on-year figure represented a fall from 2.4% in June 2012.

The wider European Union cost of living was up 0.1% from May to 1.7% in June, compared with 2.5% for the same period last year.

The lowest annual rates were in Greece (-0.3%), Latvia and Poland (both 0.2%), while the highest rates were in Romania (4.5%), Estonia (4.1%) and the Netherlands (3.2%).

In June, the annual cost of living increased in 18 EU nations, remained stable in two and dropped in six.

Greece had the lowest annual increase (0.2%), together with Sweden (0.7%) and Latvia (0.9%). The  highest were in Romania (4.5%), Hungary (4.0%) and Estonia (3.9%).

Rising prices for fresh food and electricity pushed inflation in the European Union up, while fuel and healthcare pegged the rate back.

Carney escapes letter

Although higher, the inflation rate must have brought a huge sigh of relief from new Bank of England governor Mark Carney.

The rules say that if the rate rises by 1% of more above the Bank’s target cost of living rate of 2%, the governor must write a letter of explanation to Chancellor of the Exchequer George Osborne.

As he only took up his post as governor on July 1, Carney would have had some problems justifying his predecessor’s hand on the economic tiller.

The money markets are expecting UK inflation to float around the 3% level for the next few months while rising prices work their way through the system.

Outside Europe, US inflation has hit 1.8% for June – up a significant 0.4% from May. The rise is blamed mainly on more expensive fuel.

Federal Reserve chairman Ben Bernanke said he was not perturbed by the rise, which he expected, and would keep up economic stimulus measures to keep the economy ticking over.