"While many had their money on another drop in inflation, this morning’s figures provide some hope for the future health of the economy."
CPIH inflation - the ONS' headline measure which includes owner occupiers’ housing costs was 1.1% in July, up from 0.8% in June.
The largest contribution to the CPIH 12-month inflation rate in July 2020 came from recreation and culture. Clothing, rising prices at the petrol pump, and furniture and household goods also made large upward contributions.
Ed Monk, associate director for personal investing at Fidelity International, commented: “Beneath today’s inflation rise are signs that economic life is getting back to normal, with just 12 items in the inflation basket still unavailable to buyers due to Covid-19 restrictions. That’s down from 67 in June and 90 back in April. Prices for clothing and footwear help keep the rate higher in July, with shoppers unable to bank on discounts that are normal for the Summer ahead of new lines in the Autumn.
While inflation appears to be creeping higher after a fall in the early months of lockdown, price rises remain way off the Bank’s 2% target and likely to stay this way some time even in the face of significant government stimulus. With the UK now in a recession, August’s figures may be more telling of long-term inflationary moves and the Bank of England has forecast another dip in the rate.
“Looking forward, there is the possibility of negative inflation, or record lows, as VAT cuts and Rishi’s ‘eat out to help out’ scheme distorts actual consumer spending levels. On the other hand, the Government’s increased budget deficit could lay the foundations for increasing inflation in the coming months. A potentially worrying sign with consumer confidence still struggling and wage growth negative.
“With inflation prospects looking uncertain, investors should ensure they are holding a well-diversified portfolio which is balanced to make any further volatility work in their favour.”
Richard Pearson, director at investment platform EQi, added: “While many had their money on another drop in inflation, this morning’s figures provide some hope for the future health of the economy.
“That said, while sectors such as recreation and fuel showed an encouraging uptick in demand, there’s potential for this to fall again with the threat of further outbreaks being reported. For those businesses allowed to stay open, it’s likely they would need to resort to heavy discounts to keep consumers coming through their doors.
“It’s not going to be smooth sailing, but these numbers are proof that we can and will recover. In the meantime, retail investors have yet more insight into how different companies have been faring which can be used to their advantage.”
