Inflation increases amid rising clothing and fuel prices

Rising clothing and fuel prices caused inflation to rebound last month, intensifying the squeeze on cash-strapped households grappling with low wage growth.

Figures from the Office for National Statistics (ONS) showed the Consumer Price Index (CPI) measure of inflation was 2.9% in August, outstripping economists' expectations of 2.8%.

It brings an end to a momentary pause in June and July at 2.6%, and matches levels seen in May this year and June 2013.

CPI was last higher in April 2012 when the rate reached 3%.

Sterling built on earlier gains following the news and was up 0.7% against the dollar at $1.32.

Against the euro, the pound rose 0.6% to 1.10 euros.

Mike Prestwood, ONS head of inflation, said: "Clothing prices rising faster than last year, along with a hike in the cost of petrol, helped nudge inflation upwards.

"Conversely, these effects were partially offset by airfares, which rose more slowly than during last year's summer holidays."

The main upward pressure came from clothing and footwear prices, which climbed to its highest level since official records began at 4.6% year-on-year in August.

On a monthly basis, clothing and footwear rose 2.4% after a smaller hike of 1% between July and August in 2016.

The move was partly driven by rising import costs for retailers linked to sterling's slump following the Brexit vote.

The ONS added: "The increase in clothing price inflation may be partly associated with the lagged response to the depreciation of sterling during 2016 as supply contracts with overseas producers may now be renewed on different terms."

Motor fuels were also pushing the overall cost of living higher, with fuels and lubricants rising 1.6% month-on-month in August following a 1.3% fall last year.

The price of petrol rose by 1.8p a litre to 115.7p in August, while diesel picked up by 2p to 117.6p.

However, downward pressure came from airfares, which saw smaller hikes between July and August at 10.9%, compared to a 14.4% monthly jump in 2016.

The Bank of England is predicting CPI to peak at around 3% in October, higher than its target of 2%.

Governor Mark Carney warned last month that the pressure on families would continue for the next few quarters.

Households have seen their spending power diminish as wage growth tracks below inflation.

Previously announced figures from the ONS show annual growth in wages, both including and excluding bonuses, grew by 2.1% for April to June.

The Consumer Price Index including owner-occupiers' housing costs (CPIH) was 2.7% in August, up from 2.6% the month before.

CPIH is the ONS' preferred measure of inflation, which includes costs associated with living in, maintaining and owning a home.

The Retail Prices Index, a separate measure of inflation, was 3.9% last month, rising from 3.6% in July.