LONDON, Sept 16 - Britain's underlying rate of inflation, or RPIX, remained steady at 2.9 percent in August as rising petrol and clothing prices were offset by falling foreign holiday costs, official data showed on Tuesday. The number, which was in line with analysts' forecasts, represented the 10th month that RPIX was above the Bank of England's government-set target of 2.5 percent but both the BoE and economists expect inflation to fall in the coming months. Financial markets showed little reaction to the data except for gilt futures which fell back on disappointment that inflation had not fallen. The FTSE 100 index of leading shares nudged higher to 4,271, up 10 on the day. The pound was steady on the foreign exchanges at 70.3 pence to the euro and $1.599.
"The figures are bang in line with consensus and should not affect the interest rate debate one way or the other," said Philip Shaw, chief economist at Investec bank in London. The Bank of England cut interest rates to a 48-year low of 3.5 percent in July in response to weak economic data. But a run of stronger figures from the economy in recent weeks have stoked speculation that borrowing costs could soon be on the way up. The Office for National Statistics said petrol and oil prices were up 1.1 percent on the month to stand 3.1 percent higher than a year earlier, pushing overall goods inflation to 0.6 percent, the highest for two years.
CLOTHING, FOOTWEAR ON THE UP
Within that category, clothing and footwear prices were up 0.6 percent on a year earlier, the strongest number for six years, as shops felt less need to discount than in the past, presumably because of strong consumer demand. The ONS also reported a rise in prices for sun screen creams as Britons flocked to the beaches due to some of the hottest weather on record during the month. However, a fall in the price of foreign holidays this year brought inflation in the dominant services sector down to 4.0 percent in August from 4.2 percent in July, leaving the overall inflation rate steady. The all-items inflation rate, which includes mortgage interest payments, dropped back to 2.9 percent last month from 3.1 percent the month before, due to falling mortgage payments and slower house price inflation.
The Harmonised Index of Consumer Prices, a measure which the BoE will switch to later this year, showed a rise in inflation to 1.4 percent from 1.3 percent in July. This measure is much lower currently than RPIX because it excludes house prices which have boomed in recent years. Investec's Shaw said the rise in the HICP had slightly reduced the differential with RPIX which could help smooth the switch to the new target.//