Inflation holds steady at 2.2% in August

The rate of inflation remained steady at 2.2% in August, unchanged since July, yet is still above the Bank of England’s target of 2%.Although food and energy prices continued to fall over the month, this was in part offset by transport, where prices rose by 1.2% in the month. This was particularly affected by high air fares, which rose by 22.2% between July and August 2024. Elsewhere, heavy discounting in clothing and retail saw the inflation rate in this category continue to fall, falling to 1.6% in July, down from 2%. While food and non-alcoholic beverages fell from 1.5% to 1.3%, alcohol and tobacco fell from 7.2% to 5.7%. There were also downward contributions from restaurants and hotels, which fell to 4.4% in the month, down from 4.9% in the year to July, marking the lowest rate since July 2021. The BoE’s Monetary Policy Committee will announce its latest rate decision tomorrow (19 September) after cutting the rate to 5% in August, the first reduction in more than four years. Grant Fitzner, chief economist at the ONS, said: “Inflation held steady in August as various price fluctuations offset each other. The main movements came from air fares, in particular to European destinations, which showed a large monthly rise, following a fall this time last year. "This was offset by lower prices at the pump as well as falling costs at restaurants and hotels. Also, the prices of shop bought alcohol fell slightly this month, but rose at the same time last year." Reacting to the figures, Martin Sartorius, principal economist, CBI, said: “Inflation has fallen short of the Bank of England’s latest forecast expectations for the second month in a row. This will be welcomed by households and businesses, although they will still be feeling the pinch from three years of elevated costs growth. “While the Bank’s Monetary Policy Committee will be reassured by today’s data, they’re likely to remain wary of loosening policy too quickly. Inflation is expected to pick up later this year and domestic price pressures, such as wage growth, still pose an upside risk to the outlook. That should result in a gradual path for interest rate cuts going forward, with rates likely to stay unchanged this month.” Kris Hamer, director of Insight of the British Retail Consortium, said: “With the headline rate remaining above the Bank of England’s 2% target, it is clear that the government must not take low inflation for granted. Retailers are striving to offer good value to their customers, and can go further with a supportive policy environment. “With new research showing the retail industry paying more than its fair share of business taxes, it’s time the government addressed this burden by introducing a Retail Rates Corrector. This would reduce the industry’s business rates bill by 20%, allowing retailers to continue to offer affordable prices to their customers while saving shops, protecting jobs and unlocking investment.”