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Last Updated: Tuesday, 13 September 2005, 11:08 GMT 12:08 UK
Petrol fuels rise in UK inflation
A car filling with petrol at a roadside garage
Rising crude prices continue to push up petrol prices
Rising petrol prices drove inflation higher in August, Office for National Statistics (ONS) figures have shown.

UK consumer price index (CPI) inflation rose to 2.4% in August from 2.3% in July, the highest level since current records began eight years ago.

It is the second month running that inflation has been higher than the 2% target set by the government.

Headline retail price inflation (RPI), which includes housing costs, fell from 2.9% to 2.8% year-on-year.

The increase in inflation in August was primarily due to higher prices for fuel and some food items
Howard Archer, Global Insight

However, the underlying rate of RPI fell to 2.3% from 2.4% in July.

Despite the rise in CPI, analysts believe there may still be room for the Bank of England to cut interest rates from their current 4.5% level, as the 'core' level of inflation - which gives the year-on-year figure - is 1.7%.

The core result, which was down from 1.8% in July, was a result of, among other things, lower prices for DVDs and CDs, reduced theatre and live music admission prices, and cheaper package holidays.

The ONS said petrol prices fuelled the rise in CPI - contributing nearly 0.08 percentage points to the annual CPI rate.

The average cost of a litre of petrol went up by around 3 pence in August, the ONS added.

It was the second consecutive month that petrol prices had driven inflation higher.

'Further cuts'

Food prices also had an upward impact, as did clothing and footwear as their price comebacks after the summer sales were greater than a year ago.

However, a small downward effect came from housing and household services and furniture, where there was evidence that summer sales usually held in July were being delayed until August.

The first action we must take is to tackle the cause of the problem - ensuring concerted global action is taken to bring down world oil prices and stabilise the market for the long term
Gordon Brown

"The increase in inflation in August was primarily due to higher prices for fuel and some food items, while core consumer inflation actually edged back down to 1.7% after spiking up to 1.8% in July from 1.5% in June," said economist Howard Archer, at Global Insight.

Mr Archer said he believed there may still be another 25 basis point interest rate cut to 4.25% before the end of the year, although he said this may not happen until early 2006.

ING Financial economist James Knightley added: "Although the headline rate did rise to 2.4% it really is largely energy-related because when you strip out volatile energy, food, alcohol and tobacco to just get the core number, inflation has actually slipped a bit to 1.7%."

He said inflationary pressures should continue to ease at the 'core level' through next year, which "does suggest there is scope for further interest rate cuts in the next few months".

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