Inflation update - August 2008

Keeping up to date with changes in inflation is important for your business. EEF's monthly inflation update provides the latest data on the economy and the state of manufacturing.

CPI inflation reached 4.4% in July, up from 3.8% in June and more than double the Bank of England’s inflation target of 2%.

The increase was mainly driven by rising food prices, which were 14% higher than a year ago. Large upward contributions also came from rising transport costs, as fuel prices and the cost of air travel increased by 26% and 9% respectively.

Headline inflation also came in firmer at 5.0%, while RPI excluding mortgage interest payments rose to 5.3%.

All three measures came in higher than we anticipated last month and therefore we have revised up our forecasts. We continue to expect CPI to peak significantly above target this year as increases in utility tariffs take effect. CPI is forecast to exceed 5% in September before peaking at 5.2% in October.

Over the next 12 months, however, we expect some subsequent easing as CPI is expected to come down to 2.7%, while headline inflation is forecast to fall from 5.0% to 2.9%.

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Inflation forecasts are produced on a monthly basis to provide EEF members with the most up to date information to support pay negotiations and business planning.

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