The Consumer Prices Index (CPI) rose by 0.6% in the year to July 2016, compared with a 0.5% elevation in the year to June. Although the small increase in the rate between June and July this year takes it to the highest level seen since November 2014, it’s still relatively low in the historic context. James Sproule, chief economist at the Institute of Directors, has now made comment on the official inflation figures.
“This small rise in the headline inflation rate is in line with expectations,” said Sproule, “with the Office for National Statistics suggesting that the fall in the value of the pound, which started at the beginning of the year but accelerated after the EU Referendum, could feed into higher prices for consumers. The prices UK manufacturers pay for imports is rising quite sharply, although part of this is due to the rally in oil prices in the last few months.”
Sproule continued: “The Bank of England is focused on reducing the impact of the Brexit vote, and paying little attention to inflation for the moment. It seems likely the Bank would be relaxed about the CPI rising above its 2% target, although at some point it will have to start thinking about the long-term inflation risk of ultra-loose monetary policy.”