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Inflation leaps to 4.4%

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By Lee Wild

Date: Tuesday 12 Aug 2008

LONDON (ShareCast) - Inflation is now more than double the government’s 2% target after soaring to 4.4% last month on further increases in the cost of food and stubbornly high fuel prices.

The Consumer Price Index jumped from 3.8% in June and trumped market expectations of a rise to 4.2%. It’s the highest inflation figure since the Office for National Statistics began compiling figures 11 years ago.

The Bank of England would have been in possession of the latest data when it decided to keep interest rates on hold at 5% last week. Recession fears are obviously a concern.

Central bank governor Mervyn King had already said he thought inflation would top 4% this year, but analysts at Citigroup look like getting it right after predicting 5% or more before the year is out.

Food and non-alcoholic beverages was responsible for a big chunk of the increase, rising 12.3% year on year from 9.5% in June, while food inflation hit a record 13.7% versus 10.6% previously.

Petrol prices added 1.2p a litre to 118.8p between June and July compared with a 0.4p fall a year earlier, while airlines bumped up fares due to the soaring cost of fuel.

Families are having to find extra cash for utility bills, with energy prices up 16.1%, although that’s likely to increase again following the recent round of price increases.

Elsewhere in the report, the Retail Price Index (RPI) measure of inflation, which includes the cost of housing, jumped to 5% in July from 4.6% the month before.

Figures out yesterday showed factory gate inflation, or the price at which goods are sold, rose 0.4% last month and by 10.2% on an annual basis as manufacturers passed on high raw material costs. That’s the fastest pace of increase since 1986, putting further pressure on households.

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