U.K. inflation slowed from a 14-month high in July as the price discounting on clothing and footwear sales partially offset the gains in fuel and transport costs, data released by the Office for National Statistics showed Tuesday.
Nonetheless, factory-gate prices accelerated on higher petroleum prices, and input price inflation hit the highest since March 2012, signaling existence of inflationary pressure in the economy.
Consumer price inflation dropped marginally to 2.8 percent, in line with forecast, from 2.9 percent in June. On a monthly basis, consumer prices remained flat after falling 0.2 percent in June.
The Bank of England expects inflation to remain close to 3 percent in the near term. The bank plans not to hike the interest rate from the 0.50 percent, at least until the jobless rate falls to a threshold of 7 percent.
Although, the BoE last week linked its interest rate guidance with unemployment rate, Governor Mark Carney affirmed that the 2 percent inflation target remains the primary objective.
Inflation may yet touch 3 percent in the near term, but it should start heading gradually down towards the end of the year, IHS Global Insight's Chief UK Economist Howard Archer said.
He expects inflation to dip to 2.7 percent by the end of 2013 and then trend down further to end 2014 just above 2 percent.
Data today showed that largest contributions to the fall in annual inflation came from air fares and clothing and footwear sectors, while a rise in petrol and diesel prices counteracted the decline.
Core inflation that excludes prices of energy, food, alcoholic beverages and tobacco, slowed more-than-expected to 2 percent from 2.3 percent a month ago. It was forecast to ease moderately to 2.2 percent.
Similarly, retail price annual inflation fell to 3.1 percent in July from 3.3 percent in June, which was marginally below the 3.2 percent forecast.
Another report from ONS showed that output price inflation rose to 2.1 percent in July from 2 percent in the prior month. The rate matched economists' forecast.
Factory-gate prices rose 0.2 in July from a month ago, compared with a rise of 0.1 percent in June. The main upward contributions to the monthly price rise were from petroleum products and food products.
At the same time, input price inflation increased sharply to 5 percent, the highest since March 2012, from 4 percent in June. Nonetheless, it remained below the consensus forecast of 5.5 percent.
Month-on-month, input prices surged 1.1 percent as expected for July. The rate follows a 0.2 percent rise in June and a 0.7 percent drop in May.
In a separate communique, the ONS said house price inflation surged to its highest level in six months in June. House prices increased 3.1 percent year-on-year in June after logging a 2.9 percent increase in May.
Survey results from the Royal Institute of Chartered Surveyors, published earlier in the day, also revealed that price pressure is building up in the property market. The house price balance rose to 36 in July, the highest reading since November 2006, from 21 in June.
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