LONDON, U.K. - August inflation levels jumped to its highest level since last year’s Brexit referendum even as the decision to leave the European Union continues to push up the cost of living in the U.K.
According to the Office for National Statistics, the U.K.’s Consumer Prices Index (CPI) inflation rate, which is the key measure of inflation, was 2.9 percent in August, up from 2.6 percent recorded in the previous month.
Economists polled before the release said inflation had been expected to climb to 2.8 percent from the 2.6 percent level seen in both June and July.
However, this just exceeded those expectations.
CPI, which measures the weighted average of prices of a basket of goods and services, including food, transportation, and medical care is not however believed to be a useful indicator of living costs.
The ONS cites CPIH, a measure which includes costs associated with maintaining a home as a more useful indicator.
The CPIH was at 2.7 percent, also rising from the 2.6 percent recorded at its last reading.
The ONS said in a statement, "Rising prices for clothing and motor fuels were the main contributors to the increase in the rate between July and August 2017.”
Mike Prestwood, the ONS' head of inflation said, “Clothing prices rising faster than last year, along with a hike in the cost of petrol, helped nudge inflation upwards. Conversely, these effects were partially offset by airfares, which rose more slowly than during last year’s summer holidays. The costs of raw materials and goods leaving factories also increased slightly, mainly due to oil and fuel prices.”
The pound has fallen 11 percent against the dollar since the referendum, boosting import costs that has also increased prices for everyday household items.
However, the inflation rate has never been higher since 2012.
Ben Brettell, senior economist at Hargreaves Lansdown said in an emailed statement that the pound is pretty much the only driver of current inflation, noting that "beyond the currency effect there appear to be few underlying inflationary pressures."
He said, “Labour costs are the main factor in domestic inflation, and growth here remains below long-term averages. Productivity growth is sluggish, and technological changes look to be suppressing wages, with the likes of Uber, Amazon and Netflix disrupting traditional industries.”
While the numbers are squeezing households, they could also lead to fresh pressure on Bank of England policy makers, who are grappling with price growth above their 2 percent target.
Last month, while just two of the nine-member Monetary Policy Committee voted to increase interest rates from a record-low 0.25 percent.
Some economists, however, have said that a third member, Andy Haldane, could join them at this week’s meeting.
According to James Knightley, chief international economist at ING in London, a 6-3 vote “could prompt a reappraisal of the potential path of interest rates. But we feel that the economic uncertainty brought about by Brexit will lead the committee to hold fire until there is much greater clarity on the U.K.’s post Brexit environment.”
Following news of inflation's rise, the pound jumped, as market participants see an increased probability of the Bank of England hiking interest rates in the coming months.