Increasing prices lead to inflation high

Continuing rising food prices and fuel costs have pushed inflation ever higher. Under the Retail Prices Index (RPI), it rose to 5.0% in July from 4.6% the previous month — the fourth consecutive monthly rise and its highest level since 1991.

Rising oil prices hit two of the 14 groups that make up the RPI. The 17.2% rise in fuel and light included a 78.9% rise in oil and other fuels, while the 7.4% rise in motoring expenditure included a 26.4% rise in petrol and oil prices.

Also in the fuel and light group, gas and electricity prices were up by 12.9% and 12.6% respectively.

The 12.2% rise in food prices was the largest rise since July 1980 and included substantial hikes in a number of staples, such as 36.5% for butter, 35.9% in egg prices and 19.4% for a pint of milk.

The RPI is the inflation measure used in most wage negotiations, and with average earnings rising by just 3.3% against the June inflation rate of 4.6% living standards have been hit even further — the gap between earnings and inflation is up by 1.3 percentage points. (For more details see article on page 18.)

Under the Consumer Prices Index (CPI), which excludes housing costs and is the government’s preferred measure, inflation was up to 4.4% in July. It may peak at 5%, according to the governor of the Bank of England Mervyn King.