Inflation increases herald continuing squeeze

Smaller rises for utility bills and clothing prices compared with last year helped the consumer price index (CPI) rate of inflation edge down to 2.5 per cent in August from 2.6 per cent in July, the Office for National Statistics (ONS) said yesterday.

But the rising cost of petrol and diesel maintained upward pressure on inflation in August and fuelling fears that the rate will not fall as rapidly as the Bank of England hopes, tightening the squeeze on households.

Economists also warned that droughts in the United States are likely to mean higher food prices while more energy price rises are in the pipeline this autumn.

Higher university tuition fees will also add to inflation next month.

The forecasts will trouble the Bank of England, which must keep inflation as close to the Government’s 2 per cent target as possible, after it previously said the rate would fall throughout 2012 and into 2013.

The most significant upward pressure on prices came from transport, specifically motor fuels, the ONS said.

Average petrol prices increased by 3.5p a litre to 135.1p in August, while diesel rose by 3.3p to 140.3p.

Furniture, household equipment and maintenance prices rose by 0.8 per cent in August, less than the 2 per cent rise in the same period last year, with the main downward effect coming from lounge furniture and tufted carpets.

The main downward effect came from gas and electricity bills which were unchanged this year, compared with rises last year.

Meanwhile, clothing prices rose by 2.8 per cent between July and August.