UK inflation rose unexpectedly in August, squeezing consumers’ disposable income even as wages showed signs of recovery.
Consumer price inflation increased to 2.7 percent in August from 2.5 percent in July, the Office for National Statistics reported Wednesday.
A similar higher rate was last seen in February. Economists had forecast inflation to ease to 2.4 percent.
Month-on-month, consumer prices climbed 0.7 percent, faster than the expected 0.5 percent.
Core inflation that excludes energy, food, alcoholic beverages and tobacco, rose to 2.1 percent from 1.9 percent in July.
Prices of recreational and cultural goods and services, transport and clothing pushed up inflation in August. Meanwhile, downward contributions came from furniture and household goods and telecommunications.
The unexpected rise in CPI inflation came as a bit of a nasty surprise, but it does not alter the assessment that inflation will be back at the 2 percent target by this time next year, Ruth Gregory, an economist at Capital Economics, said.
The economist added that the Brexit uncertainty will prevent the Bank of England from lifting interest rates again until May 2019.
Inflation surprisingly rose for the second successive month in August, largely wiping out the recent recovery in real wage growth and emphasizing the continued squeeze on consumers, Suren Thiru, head of economics at the British Chambers of Commerce, said.
Another report from ONS showed that output price inflation slowed to 2.9 percent in August, in line with forecast, from 3.1 percent a month ago. The rate has remained positive since July 2016.
Compared to July, output prices gained 0.2 percent versus no change in July, but matched economists’ expectations.
Input price inflation slowed to 8.7 percent from 10.3 percent in July. The expected rate of increase was 9.1 percent. On a monthly basis, input prices rose 0.5 percent, as expected, after staying flat in July.
In a separate communique, the ONS reported that house price inflation fell to 3.1 percent in the year to July from 3.2 percent in June. This was the lowest annual rate since August 2013, when it was 3 percent.