UK CPI - Air Fares Drive Inflationary Lift Off

18th September 2024

Annualised inflation came in at 2.2% in August unchanged from the 2.2% reported in July.

Annualised inflation was forecast to come in at 2.2% (Trading Economics).

Core Inflation came in at 3.6% in the 12 months to August 2024, up from the 3.3% in July and slightly ahead of forecast.

Nicholas Hyett, Investment Manager, Wealth Club Said,"Core inflation rose in August and came in higher than expected, driven by rising transport prices and particularly air fares which rose an eye watering 22.2% between July and August. While some summer price hikes are normal, this is the second most dramatic take off in plane ticket prices since 2001.

Cash strapped consumers received some relief from a slowdown in the rise of motor fuel and alcohol prices - with the overall goods inflation index continuing to see prices fall year-on-year. However, those rising air fares meant services inflation remains sky high and rising - hitting 5.9% year-on-year.

High core inflation, coming in a touch above expectations, increases the chances the Bank of England choose to leave interest rates unchanged tomorrow. It's a delicate balance to strike though - especially when headline numbers are driven by big movements in a single, seasonal variable like air fares. Leave rates too high for too long and risk an economic crash landing and a painful recession, cut them too soon and the danger of an inflationary tailspin increases."

The Federal Reserve i the United States is expected to cut interest rates this evening (200pm Eastern Standard time in USA. The media outlets in the UK are all saying they expect UK to drop interest rates on Thursday 19 September 2024.