Inflation rises in July

Core inflation in July, stripping out volatile energy, food and tobacco prices, rose to 1.2% – its highest rate since February.

Shoppers are enjoying their longest run of falling food prices on record according to official figures that showed overall inflation remaining near historic lows at 0.1 per cent.

Bank of England Governor Mark Carney will now have to write an open letter to the Chancellor of the Exchequer, George Osborne, as inflation is more than a percentage point below the central bank’s target of 2.0%. That is a small increase but marks the second straight month of year-over-year price gains after the annual index failed to advance from January through May.

Energy costs edged up 0.1 per cent and are 14.8 per cent below the level a year ago.

Signs of an ebb in the disinflationary trend, combined with a tightening labor market and strengthening housing sector could give the Fed confidence that inflation will eventually rise toward its 2 percent target. A 0.4% advance in the shelter index was the main contributor to the increase, though the indices for medical care and apparel also rose.

With the inflation going up, it fuels debate over higher interest rate, probably before FED lifts its interest rate.

Tombs added that output prices dropped by 1.6% compared with July 2014. But from a year earlier, gasoline prices are down 22.3%.

Analysts believe the figure could still return to negative territory in the coming months as the fall in the price of oil works its way through the statistical system.

Halifax executive Stephen Noakes said: “House price growth remains robust notwithstanding the easing in July. Meanwhile, British Gas will cut its gas prices by five per cent in August and past behaviour suggests that other suppliers will follow suit soon”.

Persistently low inflation is a worry for the economy because it can slow the pace of wage increases and make it more difficult for households and businesses to pay off debts. The benchmark 10-year jumped to 2.207% before slipping back to 2.196% by 8:55 a.m.ET.

Activity in mining rose 0.2% while utilities fell 1%.