From a year earlier, overall prices rose 0.8% and core prices advanced 2.2%. Offsetting pressure came from a 0.7 percent rise in fuel prices, contrasting with a 0.6 percent fall in July previous year, and other transport-related costs.
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The retail price index (RPI), which includes the cost of housing and is calculated differently from CPI, rose to 1.9% from 1.6%. The pound has fallen by almost 10 percent against the U.S. dollar since the June referendum, unavoidably pushing up the price of imports.
Driving forces that held CPI back were a drop of 1.6% in the monthly energy prices, as well as flat pricing on food.
The pound rose 0.8% against the dollar to $1.2994 following the inflation figures, and strengthened against the euro after falling earlier in the day.
Core inflation compared to the prior year has been running hot and above the Fed’s 2% target since last December.
The pound touched a new three-year low against the euro on Tuesday (16 August), even though data released earlier in the day showed inflation in the United Kingdom rose slightly more than expected in the first month following the European Union referendum.
The Reserve Bank of India had left key rates unchanged in its policy review last week, citing upside risks to the target of 5 per cent inflation for March 2017.
The probability of a rate hike in September now stands at 24% according to Fed Funds Futures and chances are it will fall further in the next few days.
The wholesale price inflation for food articles quickened to 11.82 percent in July from 8.18 percent in the preceding month.
The yield on 10-year gilts, which are more sensitive to the inflation outlook than shorter-dated securities, was little changed at 0.53 per cent in London, while the yield on the UK’s 30-year bond fell two basis points, or 0.02 percentage point, to 1.25 per cent.
However, the rise in prices may provide partial relief to manufacturers and producers, although it brings bad news for household budgets of consumers, warranting redressal of the issues arising out of demand-supply mismatch. But the recovery from the Great Recession has been marked by extremely low inflation. That is the biggest increase since November 2014.
Utilities output jumped 2.1 percent as hotter-than-usual weather boosted air conditioning use.
But think-tank the National Institute of Economic and Social Research (NIESR) estimated that GDP fell by 0.2% month on month in July following the vote.
Amherst Pierpont Chief Economist Stephen Stanley also sees the decline as temporary, but noted that Tuesday’s data “will shape the Fed discussion at Jackson Hole and the set-up for next month’s FOMC gathering”.
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-Michael S. Derby contributed to this article.
