Record Business Insider: Soaring Oil Prices Push Inflation To8-Year High
Posted on: Wednesday, 17 August 2005, 06:00 CDT
RISING petrol prices sent inflation to its highest level since Labour came to power, figures showed yesterday
With motorists facing higher fuel bills due to record oil prices, the annual rate of Consumer Prices Index (CPI) inflation rose to 2.3 per cent in July from 2.0 per cent the previous month.
Experts said the stronger-than-expected data made it unlikely the Bank of England would cut interest rates again this year.
Petrol prices increased by 3.3 per cent over the month and 9.8 per cent on the year, the Office for National Statistics said.
Recent data from the transport industry revealed motorists were paying an average of more than 90p for a litre of unleaded petrol.
Surging oil prices have fuelled the increase, which was the biggest contributor to the rise in inflation.
Economists said inflation now appeared to have surged ahead of the Bank of England's central forecast, cutting the likelihood of another reduction in the cost of borrowing this year. The bank cut rates for the first time in two years this month.
Philip Shaw at Investec Securities said: 'The figures are worse than expected. They tend to support our view that the Monetary Policy Committee will keep rates on hold for the remainder of the year.'
He did not believe the data scuppered the outlook for lower base rates over the medium to long term, saying rates would probably still be lowered early next year.
In their quarterly Inflation Report last week, the Bank predicted CPI would rise above the Government's 2.0 per cent target in the short term.
The bank said it would then ease off before once again passing this level at the end of the two-year forecast period.
Experts had expected annual CPI to rise by 2.1 per cent during July.
While they had factored in the rise in petrol price inflation, they said other factors such as 'disappointing' summer sales were more surprising.
Source: Daily Record; Glasgow (UK)
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