Inflation dips but experts warn of impending hikes
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Official figures show inflation dipped in August, but any relief on our budgets is likely to prove short-lived, experts warn.
The Consumer Prices Index fell from 2.6% to 2.5%, aided by a reduction in airfares between the peak July month and August, with similar falls in clothing prices.
However, economists warn that food and petrol prices are likely to increase as we head towards year end - and of course there are the customary hikes in energy prices that we see almost every autumn to factor in.
These all point to a higher rate of inflation before year end.
Bank keeps getting it wrong on inflation
Of course predicting inflation is often a mug's game - just last month it jumped from 2.4% to 2.6% when everyone was expecting a fall - but if the latest forecast proves accurate then it will make for an uncomfortable few months for the Bank of England (which, let us not forget, has been tasked with keeping inflation at 2%).
When inflation soared above 5% almost a year ago and savers were losing money in real terms due to the decision to keep interest rates at 0.5%, the Bank placated the public with claims that inflation would likely fall throughout the second half of 2012 and into 2013.
Combine last month's shock rise with these latest predictions, and that looks unlikely to happen.
2013 won't be that bad after all
While that all sounds a little miserable, we do have some good news for you. The influential Centre for Economics and Business Research (CEBR) predicts that households will enjoy the first increase in real income next year since the credit crunch struck.
And while we've become accustomed to stories of only the richest prospering, the CEBR claims it will be lower- and middle-income earners who see the greatest benefit.
Its research suggests that real incomes will rise by 1% for middle-income households and by 1.5% for poorer households, while richer households will see a 0.7% rise, explains Daniel Solomon, CEBR economist.
"There is finally a glimmer of light at the end of the tunnel for retailers, after four barren years. Conditions will still be tough, just slightly easier than before."
So at least that's something to look forward to.
what a load of rubbish! fuel is the main driver of inflation and its never dropped properly when the cost of a barrel of oil drops.
i just hope that the OFT does a proper investigation into this as somethings not quite right with fuel prices.
i would start at looking closely at BP and Esso's pricing. they always seem to be at least a couple of pence dearer than any other fuel company's petrol station in any area up and down the country.
why anyone still buys petrol off them i really dont know? they're wasting hundreds of pounds each year for nothing!
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