Inflation Edges Up Amid Clothes Discounts Lull

The Labor Department said Wednesday that its consumer price index rose 0.1 percent in July following increases of 0.3 percent in June and 0.4 percent in May.

The Labor Department said its consumer price index edged up by 0.1 percent in July after climbing by 0.3 percent in June and 0.4 percent in May.

But currency markets focused on the sharp rise in “core” inflation – stripping out volatile food and energy prices – which jumped from 0.8% to 1.2% in July.

The Consumer Price Index (CPI) measure of inflation was slightly higher than expected in July, edging up from zero in June due to the weaker impact of summer clothing sales compared to a year ago.

In addition, the overall index was also influenced by an increase in recreation services & culture (1.9 percent), transport (1.6 percent) and slight increase in clothing & footwear (0.9 percent). Shelter prices are up 3.1% from a year earlier. This month-on-month figure was also more inflationary than analyst estimates.

Tobacco prices went up by 6.3 percent in the year but its weight in CPI basket is 0.27 percent.

In the 12 months through July, the CPI climbed 0.2 percent.

And in the last few days, Kristin Forbes, another MPC member, has voiced her concerns about keeping rates at record lows, saying interest rates will need to be increased before inflation hits the 2% target’.

The Federal Reserve is looking for inflation to firm gradually as it considers when to raise short-term interest rates for the first time since 2006.

However, it believes inflation will get back to its target within the next two years, thanks to an improving employment market and “gently rising” Base Rate. When combined with a stronger dollar and slower growth overseas, the energy slump will make the Fed’s price goal even more elusive.

Excluding London and the southeast, UK house price inflation was 5.2%.

“Business, consumers and rail passengers will cheer this month’s low inflation figures”, says James Sproule, IoD chief economist. Economists expect the drop in air ticket prices, which was the largest since December 1995, will be temporary.