A squeeze on food bills offset lower petrol prices in July to keep the cost of living well above the Bank of England’s target, official figures have showed.
The Consumer Prices Index (CPI) edged down from 3.2 per cent to 3.1 per cent over the month, in line with City hopes - but still triggers another open letter from Governor Mervyn King to the Chancellor to explain the stubbornly high inflation.
The Office for National Statistics (ONS) said food prices jumped 0.7 per cent between June and July, the biggest monthly rise for two years.
But falling petrol costs and second-hand car prices over the month - in contrast with steep rises a year earlier - helped ease CPI overall.
However, rail commuters face the prospect of a hike of at least 5.8 per cent in the price of season tickets in the new year following the announcement of the inflation figures.
And the increase could be even more if, as some fear, the Government scraps the current annual price-rise formula.
Under the existing formula, train companies are allowed to raise regulated fares annually, which include season tickets, by 1 per cent above whatever the previous July’s retail price index (RPI) inflation figure is.
The RPI figure for July was 4.8 per cent, which would mean a 5.8 per cent fares rise in January 2011.
However, Transport Secretary Philip Hammond has said that he is not in a position to say whether the current RPI plus 1 per cent formula will remain, meaning that fares could rise in excess of this 5.8 per cent figure.
The Birmingham Chamber warned that the latest inflation figures could indicate that the ncountry has the potential to fall back into recession.
Will Rogers, BCI policy adviser, said: “The cost of living is being pushed higher by increased energy costs, rising food prices and the return of VAT to 17.5 per cent from 15 per cent a year ago.
“Unemployment did fall last week but there is no doubt that the economy remains extremely fragile, and it is likely unemployment figures will rise owing to public sector cuts.
“A double dip recession cannot be ruled out as growth is likely to be tempered by the continuing fiscal consolidation and the persistence of tight credit conditions.
“The forthcoming increase in the standard rate of VAT to 20 per cent will add to inflation throughout 2011. High food and petrol prices will also continue to play a part.”