The latest inflation rate figure has been released, remaining at 2.2% in the year to August. Still slightly higher than the Bank of England’s 2% target, it has held steady for a second month following 2 months at the target rate.
Why has the inflation rate remained unchanged?
An increase in airfares, especially to European destinations, was experienced and could potentially have led to a rise in inflation. However, this increase was offset by a decrease in other costs, such as restaurant, hotel and fuel prices.
Although airfares are typically expected to increase during the summer months, the prices rose by 22% between July and August. According to the Office for National Statistics (ONS), this was the second-largest monthly increase in airfares since 2001.
Restaurant and hotel prices, on the other hand, slowed down, rising at a slower rate of 4.4% in the year to August. Fuel prices were also lower, having fallen by 3.4% in the year to August.
How will the latest inflation rate affect interest rates?
The 2.2% inflation rate figure has been released a day ahead of the Monetary Policy Committee’s next review of the base rate. Remaining unchanged, it has prompted economists to predict that the Bank of England will hold interest rates at 5%. Whilst headline inflation seems to be under control, the rise in core inflation still has to be taken into account. This rose to 3.6% in the year to August compared with 3.3% in the year to July.
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