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UK inflation rises to 2.5% as used car and food prices rise | inflation




Inflation in the UK has risen to 2.5%, its highest level in nearly three years, after demand boosted due to the easing of lockdown measures.

The National Statistical Office (ONS) said that the main factor that caused the annual inflation rate to rise from 2.1% to 2.5% in June was the high prices of food, used cars, clothing, shoes, and fuel.

The figure is the highest since 2.7% in August 2018 and beat analysts’ forecast of 2.2% and the Bank of England’s target of 2%.

Excluding food, energy, alcohol and tobacco, core inflation rose from 2% to 2.3%.

Threadneedle Street policymakers have signaled that the rise in inflation is expected to be temporary and will not trigger an early rate hike from an all-time low of 0.1%.

According to ONS, part of the increase in inflation, as measured by the Consumer Price Index, was due to a rebound in prices after prices fell during lockdown periods.

Jonathan Athow, deputy director of national statistics at ONS, said: “The uptrend has been widespread, for example, driven by increased used car prices and food prices with reports of increased demand.”

While some of the hikes are due to temporary effects (such as rising fuel prices that continue to increase inflation), much of this is due to prices recovering from troughs at the beginning of the pandemic. Higher clothing and footwear prices compared to the usual seasonal pattern of summer sales also added to the upward pressure this month.

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Samuel Tombs, UK chief economist at consulting firm Pantheon Macroeconomics, said companies are trying to capitalize on strong consumer demand after the coronavirus restrictions are lifted.

The base rate hike in June was driven by clothing inflation rising from 2.1% in May to 3.0% and restaurant inflation rising from 1.4% to 2.2%. In addition, used car inflation rose from 0.9% to 5.5%, raising the headline interest rate by 0.08 percentage points.

Yael Selfin, Chief Economist at KPMG UK, said: “A combination of factors could push inflation above the Bank of England target of 2% as many companies continue to grapple with rising costs and supply chain shortages, but we are at the peak It is expected to reach around 3% by the end of the year.

The prospect of cooling inflationary pressures over the next year as businesses adapt to new levels of demand should give the Bank of England room to keep rates unchanged for the time being.




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