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Shock jump in inflation in July

John Fitzsimons
by Lovemoney Staff John Fitzsimons on 14 August 2012  |  Comments 12 comments

Inflation rises unexpectedly in July, which means bad news for rail passengers.

Shock jump in inflation in July

The Office of National Statistics has confirmed that the Consumer Prices Index (CPI) annual measure of inflation rose to 2.6% in July.

The Retail Prices Index (RPI) measurement also rose, from 2.8% to 3.2%.

The jump in was partly due to the increasing cost of transport (in particular air fares), clothing and footwear.

This follows a sharp fall in June, with the CPI measurement dropping from 2.8% to 2.4%, while RPI fell from 3.1% to 2.8%. Many retailers launched their summer sales early this year following the wet spring and early summer.

Inflation tracks how the cost of living is increasing. It’s also used to help work out changes in pensions, benefits and things like rail fares.

The Bank of England has a 2% target for inflation, a target it has consistently failed to hit. However, in its inflation forecast last week, the Bank suggested inflation is likely to fall below its target at some point later this year.

This month's figures are particularly important for rail commuters, as July's RPI figure is used to set the following year's fare increases. If the Government continues with its policy of allowing rail operators to increase season tickets by RPI + 3% in England it means the average commuter will pay 6.2% more for their season ticket from January. In Scotland, the figure is RPI + 1%. The Welsh and Northern Irish Assemblies have yet to announce their figures.

Demonstrations about the high cost of rail travel have been staged at major railway stations around the UK today.

More on the economy

Why the banks are stil strangling British business

Why base rate hasn't been cut to 0%

No change in base rate or QE

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Comments (12)

  • charles125
    Love rating 53
    charles125 said

    Very easy to explain indeed. Everything has to be transported and diesel is back near record high in price at the pumps.

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  • jonnie2thumbs
    Love rating 90
    jonnie2thumbs said

    Inflation tracks how the cost of living is increasing. It’s also used to help work out changes in pensions, benefits and things like rail fares.

    Really? From a financial journalist?

    Report on 14 August 2012  |  Love thisLove  1 love
  • OorWullie
    Love rating 38
    OorWullie said

    I have been aware of this rapid increase in the cost of living since the beginning of the year and I suspect the CPI and RPI are being manipulated to hide how low the value of the currency has dropped since the government imposed its quantitive easing programmes. Last year I could pay my cash card monthly above the minimum requirement but this year I have had to consider going bankrupt which I may need to do but not willingly. When the government keeps reneging on its policies then one is compelled to do the same.

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  • CuNNaXXa
    Love rating 362
    CuNNaXXa said

    I am sure that many organisations are milking the recession, or raising prices to compensate themselves for the poor sales during the bad weather (all four months of it).

    As for rail hikes, don't forget that there are bonuses to be paid, before what is left is spent on improving the services.

    Call me a sceptic, but too much money is syphoned off to pay investors, and not enough is spent improving what we already have. I know that the shareholders have to be appeased, but at what cost. Surely if something is failing, the shareholders should see a diminishing return for their investment, not the other way around.

    To demonstrate what I mean, how did many of our established banks find themselves going bankrupt? They are supposed to be making money out of handling our money, yet they managed to end up going bust, relying on state handouts to bail them out. If any of us mismanaged our money like the banks did, we would be accused of gross stupidity, and would have no one to blame but ourselves.

    Consumer is just another word for 'captive audience'. When they know that there is no alternative, they can charge what they bloody well want to, and we have no choice but to pay.

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  • electricblue
    Love rating 643
    electricblue said

    Consumers DO have plenty of choices which is why most of us choose not to use the railways. Those who choose to live or work in large cities need to question their sanity before they complain about ticket prices, but we all have choices. If there weren't so many overcome with the greed of earning more, the cities would not be so expensive and things would even out. I don't understand comments about the value of sterling as the pound is at a pretty healthy compromise level against both the Euro and the Dollar.

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  • Mike10613
    Love rating 599
    Mike10613 said

    The cheapest petrol where I live was 125.9 last month and it's 132.9 today. I wonder why? I think that promotion by Morrison's putting their price up and offering 6p off to supermarket customers spending £40 was a factor that reduced competition. I don't know why it's so expensive now, but there does seem to be a unspoken cartel. The basket of goods that measures inflation usually has something slapped on the top like a widescreen television to bring the rate down. Maybe people are buying less luxuries? Money is only a medium for exchanging goods and services. the goods and services are the real wealth. We have to maintain wealth by maintaining our hospitals and public buildings for example. We have to preserve wealth by making things and offering services that people want. The cuts mean that wealth isn't being preserved and it isn't being created. The economy is now greed driven and the medium of exchange is constantly devalued.

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  • silkycat
    Love rating 37
    silkycat said

    Why the fixation about low inflation rates? The Keynsian model says that around 5% inflation is ideal. Inflation is a good way of reducing the value of debt. At 5% the value of any debt is reduced by 25 - 30% in 5 years. Provided you don't go on building it up. Current evidence suggests that individuals are reducing their debt commitments.

    However if we 'spend' too much on reducing our debts we are not spending on goods and services - hence recession. So inflation can be good. Especially if Governments borrow to spend on infrastructure and then find the value of the debt incurred falling at 5% per year.

    There is no reason why rail companies need to raise prices by inflation + if they are still making good profits. We already have the most expensive public transport in Europe, there is no need to make it even more expensive unless you want to out earn the bankers!

    Fuel prices always do rise at this time of year, I don't know if it is speculators guessing likely demand for winter fuel, retailers cashing in on us all using our cars more to go on holiday or just clawing back revenue lost on promotions. I was paying 140.9 for diesel in early May, by the end of June it had dropped to 135.9, today it was back up to 139.9. There has been virtually no change in the dollar/pound exchange rate in that time.

    There is no competition on rail fares and fuel retailers operate as a cartel in the guise of tight competition. Our only choice is decide not to travel. Not easy if you need to get to work, and live in 'commuterland'.

    Higher inflation usually means higher interest rates. Bad news if you have a mortgage, but good news if you are a saver or have an index linked pension. But rates are only used as a tool to restrict borrowing and choke off inflation. They don't really need to rise in line with inflation just like rail fares!

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  • Arblaster
    Love rating 41
    Arblaster said

    Why the fixation about low inflation rates? The Keynsian model says that around 5% inflation is ideal. Inflation is a good way of reducing the value of debt. At 5% the value of any debt is reduced by 25 - 30% in 5 years. Provided you don't go on building it up. Current evidence suggests that individuals are reducing their debt commitments.

    Well, if John Maynard Keynes says we should have 5% inflation, who are the Austrians to argue? 5% inflation and a debt is reduced in 5 years. That will make the debt easier to pay off. And what will Red Robin do then, poor thing? Why, he'll go out and - well, clothes maketh the man...and the woman. Then there is a new car. Hey let's move to a bigger house.

    Yeah, let's have a little bit of inflation. It's only like being a little bit pregnant.

    Report on 15 August 2012  |  Love thisLove  1 love
  • electricblue
    Love rating 643
    electricblue said

    @Mike10613

    I really haven't a clue what your point is after the Morrisons bit. Wealth isn't being created? So Airbus, Rolls Royce, Jaguar Landrover and Nissan currently working flat out are making what? Number six manufacturing nation on earth and the UK doesn't make anything then?

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  • Mike10613
    Love rating 599
    Mike10613 said

    @electricblue, we aren't producing enough. That is why growth is stagnant. We need to produce not only goods, but other things. Wealth is goods and services. Even your stall on a weekend car boot sale is contributing to the wealth of the nation. We do need people making films and other entertainment, new television programmes, even rock bands being a success. You're probably too young to remember when ABBA exported more than Volvo to become Sweden's top foreign currency earner. We also need to maintain wealth, spend money on maintaining out schools and hospitals. In a recession maintenance is bound to be cut, but not to the point where it will cost more in the long run. We also have to increase efficiency, with less politically correct nonsense.

    The success in the boom years of the 1960's wasn't just industry churning out goods, it was also bands like the Stones and the Beatles and many more selling on a international scale. We also had some good fashions and there were jobs for young people. I seem to remember someone saying we had never had it so good...

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  • electricblue
    Love rating 643
    electricblue said

    I think my designing tools to supply to Mini and Land Rover plants and British Gas helps a bit more than my car boot activities, Mike. I also do my best to try and encourage youngsters to get into engineering and electronics and have given my stepson and eldest son the knowledge to now run their own businesses. Yes, we always need to manufacture more, but the UK is a mighty force in the world economy and we need to stop talking it down. My local college has had around £9M to spend on rebuilding and upgrades in the last four years so there is certainly investment in schools which has continued under the present government. British industry is pretty efficient, particularly the car production here. That ABBA thing was a bit of a myth, but I take your point about diversity of exports. Growth isn't stagnant here, the official figures are lagging behind the actual situation. I don't disagree with your interpretation of what you perceive as the state of British industry, but we are doing a lot better than some figures suggest and very much better than some of our European neighbours. I certainly am old enough to remember Abba, particularly the leggy Anna.

    Report on 16 August 2012  |  Love thisLove  0 loves
  • g1ng3rcat
    Love rating 9
    g1ng3rcat said

    But surely the big towns and cities are where the majority of jobs are, so choosing not to live in them may well mean taking your chance on not finding a job?

    Report on 16 August 2012  |  Love thisLove  0 loves

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