Inflation hits 4-year high, outpacing BoE predictions

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Inflation

Inflation has hit its highest point since 2013 as the increasing price tags of games, clothing and furniture drove up living costs.

According to the Office for National Statistics’ Consumer Price Index, inflation hit 2.9 per cent in May, over analysts’ expectations of a repeat of April’s 2.7 per cent.

This will likely put pressure on the Bank of England’s Monetary Policy Committee to raise interest rates above 0.25 per cent when it meets this week, as this increase is beyond its two per cent target.

Alongside skyrocketing foreign travel costs as consumers book summer getaways, the price of games, toys and hobbies jumped 2.7 per cent.

This was largely due to a rise in computer game prices, although these are subject to the best seller charts which fluctuate every month.

Computer equipment also saw a steep rise, with areas like data processing jumping 3.4 per cent.

Clothing prices continued to rise 0.6 per cent driven by a jump in children’s clothing. This compares to a 0.3 per cent decline a year prior.

Household goods and furniture also pushed up overall inflation, rising 1.2 per cent.

READ MORE: Inflation hits highest level in over three years

“Core inflation, which excludes food and energy, also unexpectedly picked up in May, reaching 2.6 per cent, the fastest since November 2012,” eCommera’s head of insight Alex Hamilton said.

“The concern for retailers is that weak consumer confidence, amid political uncertainty and falling real wages, will make shoppers more price conscious, at a time when many brands are looking to pass on cost rises to their customers in a bid to protect margins.

“Indeed, the fall in real wages – the difference between inflation and wage growth – is now the sharpest in three years.

“How retailers manage their cost base in this inflationary landscape will likely determine profitability this year, especially with some brands expected to incur significant cost increases emanating from the unravelling of Brexit-induced hedging.”

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