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UK inflation jumps on virus fallout, rebounding oil

Inflation in Britain ticked up to its highest level in four months in July, fuelled largely by rebounding oil prices and businesses passing on the costs of the coronavirus pandemic, data showed on Wednesday.

The annual inflation rate, as measured by the UK‘s Consumer Prices Index, rose to 1.0 percent in July from 0.6 percent in June, the Office for National Statistics (ONS) said in a statement.

It is the highest level since March and comes after inflation slowed to a four-year low of 0.5 percent in May when Britain was in coronavirus lockdown.

Volatility is expected to continue with analysts predicting a large slowdown in inflation in August after the government recently cut tax for the hospitality and tourism sectors.

The Consumer Prices Index including owner occupiers’ housing costs (CPIH) 12-month inflation rate was 1.1% in July 2020, up from 0.8% in June 2020. The Consumer Prices Index (CPI) 12-month inflation rate was 1.0% in July 2020, up from 0.6% in June.

The pick-up in the inflation rate in July was “due to the largest monthly (petrol) pump price increase in nearly a decade, as international oil prices rose from their lows earlier this year”, said Jonathan Athow, deputy national statistician for economic statistics at the ONS.

In July, daily Brent crude oil averaged US $43 per barrel (b), up by US$3/b from the average in June and up by $25/b from the multiyear low monthly average price in April. Meanwhile, the price of Brent crude oil on August 19 showed a further increase to US$45.37/b.

“In addition, prices for private dental treatment, physiotherapy and haircuts have increased with the need for personal protective equipment contributing to costs for these businesses,” he said. 

Clothing prices were also a factor, as they declined by less than a year earlier, the ONS said.

Over the last 10 years, the largest contribution to the annual CPIH inflation rate came from either housing and household services or transport according the ONS.

However, this changed in April 2020 because of a combination of reduced household utility bills and falling motor fuel prices. Since then, the largest contribution has come from recreation and culture, the ONS said.

The contribution from recreation and culture had increased in April 2020, where prices for computer games, games consoles and children’s toys rose as a result of the restrictions placed on households caused by the coronavirus (COVID-19), the ONS said.

The largest upward contribution (of 0.12 percentage points) to the change in the CPIH 12-month inflation rate between June and July 2020 came from clothing and footwear, where prices overall fell by 0.7per cent between June and July 2020, compared with a fall of 2.9 per cent between the same months in 2019, according to the ONS.

Ordinarily, prices for clothing and footwear experience a larger fall each year between June and July with items being placed on sale in preparation for the arrival of autumn product ranges.

“Throughout 2020, we have seen clothing and footwear prices follow a different trend compared with previous years, as we recorded increased discounting at the start of lockdown,” the ONS said.


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