Rising air fares fuel inflation target
Rising air fares fuel inflation target
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Tuesday, 16, May 2006 12:15
The Consumer Price Index (CPI) today rose by two per cent in April to meet the Bank of England's inflation target, with the Office of National Statistics (ONS) largely attributing the increase to the climbing cost of air travel.
In comparison, the CPI rose 1.8 per cent last month, while the ONS also revealed that the Retail Price Index, which includes mortgage interest payments, rose by 2.6 per cent, up 0.2 percentage points from March's value.
The most significant upward effect upon overall inflation was a rise in domestic and international air fares, predominantly due to a late Easter holiday season. However, the CPI was offset by a fall in the cost of road passenger transport via coaches.
Other ascendant influences were increasing utility bills, with providers beginning a whole-scale phasing in period of new higher tariffs, a rise in the price of food and non-alcoholic drinks and also the cost of private hospital treatment.
The largest downward effects included a decrease in the services industry, such as restaurants and hotels, with household equipment and maintenance prices also falling.
Howard Archer, chief UK and European economist from economic analyst Global Insight, explained that the Bank of England was not likely to be overly worried by the latest report, predicting that "interest rates are unlikely to rise until 2007".
However, he did not completely rule out the chance of an interest rate increase, despite the bank sticking with 4.5 per cent for the last nine months, saying "it is clear that the Bank of England is now on high alert for any signs that elevated energy prices are increasingly feeding through to have significant second round effects, especially given that inflation expectations have risen recently".
"Consequently, we acknowledge that the hawks at the Bank of England could push for an early interest rate hike, particularly if the housing market continues to strengthen or consumer spending firms appreciably," Mr Archer concluded.