Inflation to accelerate as wage growth lags behind

The peak in inflation is yet to be reached according to some analysis
The peak in inflation is yet to be reached according to some analysis

Inflation is expected to have accelerated when official figures are released on Tuesday, maintaining the squeeze on cash-strapped households struggling with low wage growth.

The Consumer Price Index (CPI) measure of inflation is forecast to hit 2.7% for July, up from 2.6% in June, according to consensus figures.

The move would mark a bounce back in the cost of living following June’s surprise slowdown, but would fall short of the near four-year high of 2.9% recorded in May.

RPI, a separate measure of inflation which includes council tax and mortgage interest payments, is expected to grow by 3.5% in July, the same rate as June.

Alan Clarke, head of European fixed income strategy at Scotiabank, is predicting CPI to hit 2.8%, driven in part by rising price tags on food.

He said: “Food price falls came to a fairly abrupt end in the aftermath of the Brexit vote, particularly on the back of the sharp fall in the GBP exchange rate.

“Indeed, food prices have risen for seven of the last eight months - with last month being the exception, showing a 0.2% month-on-month fall.”

He added: “Overall, we view last month’s downward adjustment in inflation as temporary and the peak in inflation is yet to be reached.”

The main downward pressure on the cost of living came in June from fuel, which saw the fourth consecutive month of falling prices, dropping 1.1% month on month.

Despite the financial pressure, consumer spending has remained robust. However, there is evidence suggesting households have been raiding money earmarked for savings, or using their credit cards, in order to keep spending.