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Inflation holds in August

The Consumer Price Index remained static at 3.1 per cent in August, according to the Office of National Statistics.

The ONS says CPI remained unchanged last month but the Retail Price Index slowed to 4.7 per cent from 4.8 per cent in July. Bank governor Mervyn King will once again write to the chancellor George Osborne and explain why inflation is above target.

Inflation still remains more than 1 per cent above the Bank of England’s 2 per cent target even after three months of slowing. The ONS says the increasing cost of clothing and food led to the high rate of inflation.

The Bank has repeatedly asserted that inflation will fall back to target in the medium term but King admitted last month he would have to keep writing letters to the chancellor in the coming months.

Barclays Capital analyst Simon Hayes says: “Any decline in the CPI inflation rate over the second half of this year is likely to be gradual at best, and that persistent above-target inflation will remain a material impediment to any further loosening in monetary policy.”

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