Inflation remained unchanged at 2.2% in August as fuel, restaurant and hotel prices offset the increasing cost of air fares, the Office for National Statistics (ONS) has revealed.

Consumer price index (CPI) inflation increased by 2.2% in the year to August 2024, while rising by 0.3% on a monthly basis.

The latest 12-month rate remains 0.2% above the Bank of England’s 2% target, which was reached in June. June’s inflation figure was the lowest it has been since July 2021, after CPI inflation reached a high of 11.1% in October 2022.

Core CPI, which excludes energy, food, alcohol and tobacco, increased by 3.6% in the year to August 2024, a figure up from 3.3%.

Between July and August, air fares increased by 22.2%. These fares usually rise month-on-month, but this was the second largest such rise since the monthly collection of prices began in 2001. The increase in air fares principally came from European routes.

However, this increase was offset by restaurant and hotel prices, which fell from 4.9% in the year to July to 4.4% in August.

Furthermore, fuel prices fell by 3.4% in the year to August, compared with a rise of 1.8% in the year to July. Services inflation also saw an increase from 5.2% to 5.6% between July and August.

Head of financial analysis at AJ Bell, Danni Hewson, said: "For the consumer it is an improving picture, especially when it comes to filling up cars or kitchen cupboards.
August delivered the seventeenth consecutive month of falling food inflation, although many shoppers are still struggling with the cost of everyday essentials – something which is likely to get more acute as the nights draw in and the heating goes on.

"For homeowners and would-be homeowners a rate hold may not be quite as bad news as they might fear, with lenders already looking ahead into next year when markets are almost fully pricing in a full 1% cut between now and next March.

"What’s clear is the double digit shocks that households endured in 2022 and early 2023 are behind us, but the impact of those shocks still linger with prices rising less quickly rather than falling and wages only beginning to fill in some of the gaps."

As a result of the unchanged inflation figure, analysts have said that there is unlikely to be any change to the BoE’s base rate, which was cut from 5.25% to 5% in August.

Head of money and markets at Hargreaves Lansdown, Susannah Streeter, added: "The rise in both core and services inflation may make BoE policymakers a bit more wary about voting for a back-to-back rate cut. It still seems likely that they will decide to keep interest rates paused this month, and instead wait to cut rates again in November and December.

"That is the scenario being priced in by financial markets, which see more than a 73% likelihood that rates will be kept on hold but that more cuts will come later in the year."

---