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UK inflation fell 0.1% in August

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Inflation fell 0.1 per cent last month to 2.5 per cent according to the Consumer Price Index (CPI) as a result of downward pressure from furniture, clothing & footwear and household services, it has been announced today.

According to the Office for National Statistics (ONS), the Retail Price Index (RPI) fell to 2.9 per cent from 3.2 per cent in July, causing the RPI 12-month rate to decline by 0.3 percentage points between July and August.

Between August 2011 and last month, the CPI rose by 2.5 per cent and, excepting the inflation figure in June this year, this is the lowest rate of inflation since November 2009, bringing relief to squeezed consumer spending.

Earlier this month, the British Retail Consortium reported that food inflation remained unchanged in August at 3.1 per cent and warned that this was set to rise in the months ahead following a poor harvest in the US.

Meanwhile, forecourt petrol prices rose 2.5 per cent over the month, and Samuel Tombs, UK Economist at Capital Economics, said that this affected the overall figure.

He commented: “The recent increase in oil prices has meant that inflation is falling at a somewhat slower pace than seemed likely a few months ago.

“CPI inflation would have fallen to 2.4 per cent had it not been for the 2.5 per cent monthly increase in fuel prices.

“Nonetheless, oil prices have levelled off in recent weeks. What’s more, inflation should drop to a greater extent in September – perhaps to 2 per cent – as we reach the anniversary of last year’s utility price hikes.”

Reduced rises in clothing & footwear, which grew by 2.8 per cent, was also a contributing factor in the overall figure, which was anticipated to be below July’s rate given the boost to that month’s figure thanks to end of summer sales and “a sharp Olympics-related rise in air fares”, Tombs explained.

He added: “The weak economy should push core price pressures down further, keeping inflation low next year.

“So overall, while inflation’s recent downward progress has been slow, the prospect of a further decline below the MPC’s target should ensure that the Committee feels free to provide the economy with further stimulus – in the form of more QE and perhaps even a rate cut – in the coming months.”

Published on Tuesday 18 September by Editorial Assistant

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