Money blog: Inflation rises for first time since last year (2024)

The UK's CPI inflation rate was belowFrance's (2.6%) and Germany's (2.6%) in the 12 months to July this year.

It's also slightly lower than the latest figure from the Eurozone, which also stands at 2.6%.

Meanwhile, the UK remains comfortably below the US figure of 3%.

The latest figure for the US is from June, with the labour department set to release its July inflation figures this afternoon.

Forecasters have predicted it will rise slightly after falling the previous month.

A slight rise in inflation is not likely to have a "massive political impact" and Rachel Reeves may not immediately react to the latest update, our political correspondent Darren McCaffrey notes.

He says we're just a month into a "stonking Labour majority", with the latest increase unlikely to stick in people's minds.

"There will be concern that inflation is a little bit stubborn... and that will obviously have an impact potentially on interest rates and how they fall.

"But I think fundamentally for the government, this is not really going to have a massive political impact. In fact, we might not even hear from the chancellor today," he says.

The government will be most concerned about the effect on inflation of global instability caused by conflicts in the Middle East and between Ukraine and Russia,McCaffrey says.

There's a key figure in the latest statistics that commuters should watch out for, says business correspondent Paul Kelso.

The Retail Prices Index (RPI) - the figure typically used to determine rail fares - stood at 3.6% in the 12 months to July.

Kelso says the use of RPI to determine fare rises in January is "not a hard and fast rule" and the Department for Transport has not yet revealed whether it will be used to determine how much commuters will pay for season tickets.

The 2023 rise was based on the UK's average earnings growth during the three months to July 2022, while a figure of 4.9% - not thought to be linked to any specific economic measure - was used for 2024.

"By January, Labour wants to have transformed the way the railway network runs - but that's one to perhaps put in your diary," he says.

Separately, Kelso notes that US inflation data comes at 1.30pm today - which will "probably have more impact on the wider economic global economy" than today's 2.2% inflation figure.

On the inflation rise generally, Kelso says it's unlikely there will be any "panic".

"But it just goes to show, as the Bank of England has been saying for quite a long time, we're not out of the woods on the inflation rate," he adds.

Those who follow inflation data each month will know that, beyond the headline figure, the core inflation number is key - as it excludes volatile elements such as fuel and food, and therefore provides a clearer picture of what's going on underneath the bonnet of the UK economy.

July's data shows core inflation fell from 3.5% in June to 3.3%.

Meanwhile, services inflation is being closely monitored by the Bank of England as it is made up in large part of wages.

Concern over wage growth is one factor eliciting caution from the Bank of England in easing high interest rates.

Today's data shows services inflation has fallen - from 5.7% to 5.2%.

Beyond the headline figure, these would appear to be encouraging signs - although goods deflation, which saw prices fall, has eased.

Chief secretary to the Treasury Darren Jones has provided the first government reaction to the latest inflation figures.

"The new government is under no illusion as to the scale of the challenge we have inherited, with many families still struggling with the cost of living," he said.

"That is why we are taking the tough decisions now to fix the foundations of our economy so we can rebuild Britain and make every part of the country better off."

Falling energy prices have fed into lower inflation in recent months - and those impacts fading away means there's been less downward pressure on inflation.

In a nutshell, energy prices are still falling - but they were falling at a much faster rate this time last year.

The Office for National Statistics has said: "The largest upward contribution to the monthly change in both CPIH and CPI [inflation] annual rates came from housing and household services where prices of gas and electricity fell by less than they did last year; the largest downward contribution came from restaurants and hotels, where prices of hotels fell this year having risen last year."

Inflation rose above target to 2.2% in July, official data shows.

The rise from target 2% is the first upward movement since December.

Economists polled by Reuters had forecast a rise to 2.3%.

Today's figure, though back above target, remains significantly lower than highs seen over the last few years - with a peak in October 2022 of 11.1%.

We'll be digging deeper into the figures over the coming minutes and hours - so don't go anywhere.

What could rising inflation mean for interest rates?

Inflation rising again illustrates the dilemma facing the Bank of England in deciding how quickly to cut interest rates.

The Bank has elevated the base rate to restrict spending and keep inflation at bay.

Susannah Streeter, head of money and markets at investment platform Hargreaves Lansdown, said high wage growth (latest data shows this is at 5.4%) remained a "lingering concern" for Bank rate setters.

"The belt to constrain growth is likely to stay in place in September, because some policymakers are still worried about the potential for wage growth to bulge again," she said.

"They're concerned that if it's not held back, it could prompt inflation to run away again if firms pass on higher wage costs to prices charged to customers."

After a first base rate cut to 5% in August, the Bank suggested rates would not fall as quickly as they rose from the beginning of 2022 until August last year.

Ahead of today's inflation data, markets were pricing in a base rate hold in September, followed by consecutive cuts in November and December.

That would leave the base rate at 4.5% at the end of the year.

"The resurgence in headline inflation in the second half of the year will create a challenging backdrop for the BOE," said Dan Hanson, chief UK economist at Bloomberg Economics.

"While the rise can be easily explained by base effects associated with energy prices, the optics of easing policy when inflation is on the rise aren't favourable."

Basically, inflation is the rate at which prices are rising.

It directly affects our overall cost of living and, if wages are not increasing at the same pace, the value of your money decreases.

It is impacted by lots of different factors including global conflicts - with the Ukraine war having a huge impact on food and gas prices in recent years. Some argue Brexit also had a negative impact.

In the UK, inflation is measured monthly - comparing how much prices are going up with the same time a year previous.

The headline inflation figure, which you'll see a lot in the news, measures price rises across a range of products that we need in our daily lives.

The most commonly used inflation index is the Consumer Price Index (this is the update at 7am today) - and the target for many Western governments is 2%.

One thing to note is that falling inflation doesn't mean prices are coming down - just that they're rising less quickly. You'd need a minus figure, or negative inflation, to see prices fall overall.

Why does inflation impact interest rates?

The Bank of England raises interest rates to try to slow spending and encourage saving - when this happens prices/inflation tend to come down.

When inflation falls, interest rates tend to.

Potential winners and losers from high inflation

Overall, a high and volatile rate of inflation is widely considered to be damaging for the economy – but there are some people who could benefit from it.

Workers with wage bargaining power (perhaps those who belong to strong trade unions) can come off better as they can protect their incomes by bidding for higher wages.

Producers could end up benefitting if their prices rise quicker than their costs.

People with stocks or property could also see the value of their assets rise if there is a sustained period of price inflation.

However, retired people on fixed incomes are likely to be worse off as inflation cuts the real value of their pensions and other savings.

The poorest members of the population will also feel the pinch more as costs of borrowing, food and domestic utilities are high.

Ofgem has given the green light to a £3.4bn project to build an electricity "super highway" between Scotland and England.

Eastern Green Link 2 - a joint programme between Scottish and Southern Electricity Networks and National Grid - would stretch for 500km (311 miles) from Aberdeenshire to North Yorkshire, transporting major quantities of renewable energy.

It marks the biggest single investment in electricity infrastructure in Britain and is part of a drive to modernise the grid.

Jonathan Brearley, Ofgem chief executive, said the energy regulator was "fully committed to supporting the government to meet its aims of getting clean power by 2030".

"Today's announcement is a further step in putting the regulatory systems and processes in place to speed up network regulation to achieve its aim," he said.

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Amazon has launched its own credit card that gives 1% back on all purchases through the site.

Partnering up with Barclaycard, the online giant's card gives customers 0.5% back on transactions made elsewhere - this will drop to 0.25% after the first year.

This does not include gambling transactions, cash withdrawals, balance transfers, buying currency or money transfers.

Amazon Prime members also get 2% back from all spending with Amazon during designated shopping event days, including Cyber Monday, Black Friday, and Prime Day.

Those who are approved for the account will get a £20 Amazon gift card as well.

Cardholders will have access to Barclaycard's entertainment perks, including advance pre-sales for selected UK events, and 10% off pre-sale tickets when they use their Amazon Barclaycard to pay.

It comes with 0% APR on all purchases for the first six months.

After this, the card has a representative APR of 28.9%, with lending and rate subject to customers' financial circ*mstances and borrowing history.

At the moment, it is only available to new Barclaycard customers, with existing account holders unable to switch.

However, Barclays and Amazon are aiming to open applications for existing Barclaycard customers in the coming months.

"We're excited to introduce the Amazon Barclaycard - designed to offer cardmembers ways to earn rewards for their Amazon purchases and every day activities with no annual fee,"said John Boumphrey, Amazon UK country manager.

"Delivering value to our customers is incredibly important to us, so we're delighted to introduce a new payment option that allows customers to save and earn on Amazon."