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Computer game and hotel prices drive surprise increase in inflation

By Alys Key, PA City Reporter

Inflation increased in July to the surprise of economists as computer game and hotel prices rose more than they did last year.

Figures from the Office for National Statistics (ONS) show the Consumer Prices Index (CPI) was 2.1% last month, compared to 2% in June.

Economists had been expecting a dip to 1.9%.

(PA Graphics)

The Retail Prices Index (RPI), another measure of inflation, was 2.8% for July. This metric will be used to calculate the cap on annual rail season ticket price increases in Britain.

Chris Jenkins, assistant head of inflation at ONS, said: “The inflation rate increased slightly, with computer games, consoles and hotel prices rising more than they did last year.

“Conversely, air, international rail and sea fares did not rise by as much as 12 months ago.”

In the volatile games, toys and hobbies category – which is often affected by the release calendar for video games – prices rose 8.4% in July compared to a 4.1% rise in the same month last year.

Accommodation services were 3.1% higher, versus a 0.5% rise a year ago.

Clothing and footwear had a positive effect on the headline rate, despite a 2.9% dip in prices.

The decline was less severe than last year, with the ONS saying there was some evidence suggesting promotional price cuts were smaller this summer.

(PA Graphics)

Transport dragged on the CPI, as prices increased only 0.4% compared to last year’s 1.3% jump.

Rail, road and sea travel showed only modest price increases, but air fares surged 12%. However this was smaller than the 20.1% leap recorded in July 2018.

Fuel costs were also falling, with petrol down 0.9p month-on-month to 127.3p per litre and diesel 2.3p lower to 132p per litre.

Diesel has traditionally been more expensive than petrol but the gap between the two has been narrowing, the ONS said.

The CPI including owner-occupiers’ housing costs (CPIH) – the ONS’s preferred measure of inflation – was 2% in July, up from 1.9% in June.

The pound rose following the release of the figures, and was trading 0.19% higher against the dollar on Wednesday morning.

Howard Archer, chief economic adviser at EY Item Club, said it was “slightly disappointing” news for consumers.

“Nevertheless, consumer purchasing power has still improved recently as July’s marginal pick-up in inflation was outweighed by earnings growth picking up to an 11-year high in the three months to June,” he said.

However, shadow chancellor John McDonnell said wages should be higher to offset the effect of inflation, as he called for a £10 living wage.

“Rising prices will hurt those already affected by nine years of austerity – and nine years of the Tories’ low-pay economy,” he said.

“Real wages are still below pre-crisis levels – and the failure of the Tories to boost real wages shows why they cannot be trusted on the economy.”