UK inflation rate falls to 2.8%

The rate of consumer prices index (CPI) inflation fell to 2.8% in July, down from 2.9% in June, according to the Office for National Statistics (ONS).

The largest contributions to the fall in the rate came from air fares, plus price movements in the recreation & culture, and clothing & footwear sectors. A rise in petrol and diesel prices partially offset the fall.

The Bank of England’s target for CPI inflation is 2%.

The rate of retail prices index (RPI) inflation also fell, to 3.1%, from 3.3% in June.

Regulated rail fares are to rise in England by 4.1% in January, although non-regulated fares - those the government controls - will go up by inflation, as measured by the retail prices index (RPI) for July, plus 1%.

The RPI index is used to calculate many pensions, as well as inflation-linked government bonds. It is calculated differently, as it includes some housing costs and other items not included in CPI. It is typically higher than the CPI measure.

The rise in inflation still dwarfs the average wage increase in the UK, which in 2013 is expected to be just 1%.

Commenting on the inflation figures in particular reference to the impending increase in rail fares, Corin Taylor, senior economic adviser at the Institute of Directors, says: “Inflation is just part of the problem, and operators must look at major reforms to bring their service into line with modern living and working practices.

“It is absurd that there is no option for an off-peak season ticket, when so many IoD members support flexible working among their staff. Many of these employers would be quite happy for staff to arrive at work after 10am, which would dramatically reduce the cost of a season ticket. Outdated concepts of 9-5 working are holding ticket prices in a time warp, and flexible lives should be reflected in flexible ticket structures.

“There should also be much more open access on the lines to encourage competition and bring down ticket prices through customer choice.”

Investec’s Philip Shaw told the BBC: “Essentially, both the CPI and RPI reports are very close to market expectations.

“On the CPI, the figures do suggest that the downtrend in inflation is in place and we think that there is a reasonable chance that inflation will be at the 2% target in spring next year.”