–Jul CPI unch. m/m; +4.4% y/y vs Jun 4.2% y/y; above median
–Jul core CPI unch. m/m; +3.1% y/y vs Jun 2.8% y/y; above median
–Jul RPI -0.2% m/m; +5% y/y; Jul RPIX -0.3% m/m; 5% y/y

LONDON (MNI) – Consumer price inflation rose unexpectedly in July,
boosted by the cost of financial services, according to figures released
by National Statistics Tuesday.

With inflation remaining well above the government’s target rate
of 2%, Governor of the Bank of England, Mervyn King, is obliged to write
an open letter to Chancellor of the Exchequer George Osborne explaining
why the BOE has failed to meet its remit again. The letter will be
published at 0930GMT.

Consumer prices were unchanged on the month in July but inflation
rose to 4.4% from 4.2% in June. Analysts had expected to see a fall of
0.2% on the month and a rise of 4.3% on the year.

The rise in inflation between June and July was mainly due to an
increase in the cost of miscellaneous goods and services which were up
0.5% on the month this year, compared with a fall of 0.3% in July last
year. This added nearly 0.1 percentage point to the change in Inflation
between June and July and was mainly due to increased fees for arranging
mortgages.

There was also upward pressure from most other categories including
clothing and footwear, housing and household services and furniture and
household goods. National Statistics said that discounting in the summer
sales had not been as large as usual for the time of year, and this may
have been because some of the price cuts had been brought forward to
June.

The only significant downward impact on inflation came from food
and non-alcoholic beverages where there was downward pressure from a
wide range of goods.

While these figures are a little stronger than expected they will
not alter the view that interest rates are likely to remain on hold for
the foreseeable future as the BOE remains concerned over the outlook for
growth.

Also, in the August Inflation Report, the BOE said that there is a
good chance that inflation would reach 5% later this year, “boosted by
utility price rises, and reflecting the continuing impact from past
increases in VAT and in oil and other import prices.”

Large rises in the cost of gas and electricity are set to hit
consumers in the autumn with the BOE then forecasting inflation to fall
sharply back to the 2% target towards the end of next year.

In the letter to the Chancellor, BOE’s King is unlikely to add much
to what the Inflation Report has already said, and is likely to
reiterate that the recent fall in commodity prices strengthens the view
that inflation will eventually fall back towards target.

Core CPI inflation, a much watched gauge of underlying inflationary
pressures, rose to 3.1% from 2.8%, the highest since May.

The Retail Prices Index, which used to be the key index for gauging
inflationary pressure in the economy, fell 0.2% on the month and was
up 5% on the year unchanged from June.

Excluding mortgage interest payments, RPIX was down 0.3% on the
month leaving inflation steady at 5%.

–London bureau: 0044 20 7862 7491; email: drobinson@marketnews.com

[TOPICS: MT$$$$,M$B$$$,MABDS$]