Partly Cloudy

Partly Cloudy

max temp: 10°C

min temp: 6°C

ESTD 1874 Search

Economy: Bigger than expected fall in July CPI inflation

10:01 19 August 2014

CPI inflation eased back to 1.6% last month, from 1.9% in June, official figures revealed today.

CPI inflation eased back to 1.6% last month, from 1.9% in June, official figures revealed today.

Inflation fell more sharply than expected last month as a late start for clothing sales spilled over into July.

shares

The Consumer Price Index (CPI) measure of inflation fell from 1.9% in June to 1.6%, meaning that inflation has been below the Bank of England’s 2% target for seven months in a row.

It is the longest run of below-target figures since the era of low inflation which began in 1997 and ended in 2005.

The steep fall is likely to ease any pressure on the Bank of England to raise interest rates amid speculation about the timing of the first increase since they were slashed to 0.5% five years ago.

The largest downward contribution to inflation came from clothing and footwear, which fell 5.7% between June and July. Prices of these products usually fall at this time of year but the drop was larger in 2014 as retailers had held off on discounts in June amid robust demand.

Food and non-alcoholic beverages fell by 0.4% year on year after no change in June and a 0.6% drop in May. The May figure was the first decline since March 2006 and the three consecutive month of flat or negative inflation is the longest period in nearly a decade.

The last longest run of flat or falling food prices was at the end of 2004, when they fell on an annual basis for five months in a row.

CPI was also eased in July by falling prices for spirits and wine, while bank overdraft charges and fees for bankers’ drafts put downward pressure on inflation too.

However, increases in used car prices and sea fares made an upward contribution.

Samuel Tombs, senior UK economist at Capital Economics, said the data was “considerably weaker” than anticipated by the Bank of England’s rate-setting monetary policy committee (MPC) in its latest Inflation Report last week.

“July’s fall in UK CPI inflation puts it back on a downward trend which we still think could see it ease to as low as 1% by the end of the year,” he said.

“The decline in CPI inflation from 1.9% in June to 1.6% was in line with our below-consensus forecast. The drop partly reflected a fall back in inflation in the clothing and household goods sectors which had been boosted in June by the slightly later start to the summer sales this year.

“Food price inflation also eased from 0% to -0.4% in July, reflecting a combination of falling commodity prices and intense competition.”

He added: “July’s outturn is considerably weaker than the 1.9% figure anticipated by the MPC in last week’s Inflation Report. And we continue to expect the Committee to be surprised by inflation’s weakness over the coming months.

“The disinflationary effects of sterling’s appreciation have not fed through fully to the shops yet. Sharp falls in wholesale energy prices mean that utility bills should hold broadly steady this winter. And the recent weakness of wages growth should keep a lid on price rises in the consumer services sector.

“So, while low inflation may not be sufficient to prevent the MPC from moving to ‘normalise’ interest rates soon, we believe that a general environment of benign inflationary pressure will give the committee scope to raise them at an even more gradual pace than currently anticipated by the markets.”

shares

0 comments

Welcome , please leave your message below.

Optional - JPG files only
Optional - MP3 files only
Optional - 3GP, AVI, MOV, MPG or WMV files
Comments

Please log in to leave a comment and share your views with other East Anglian Daily Times visitors.

We enable people to post comments with the aim of encouraging open debate.

Only people who register and sign up to our terms and conditions can post comments. These terms and conditions explain our house rules and legal guidelines.

Comments are not edited by East Anglian Daily Times staff prior to publication but may be automatically filtered.

If you have a complaint about a comment please contact us by clicking on the Report This Comment button next to the comment.

Not a member yet?

Register to create your own unique East Anglian Daily Times account for free.

Signing up is free, quick and easy and offers you the chance to add comments, personalise the site with local information picked just for you, and more.

Sign up now

The fire broke out in a kitchen of a ground floor flat High Street North, West Mersea at 8pm.

Firefighters tackled a flat blaze in north-east Essex on Thursday night.

Jonny Williams, pictured during his loan spell at Ipswich Town earlier this season

Ipswich Town have completed a sensational double swoop moments before the 5pm ‘emergency’ loan deadline – landing Jonny Williams and Zeki Fryers from Crystal Palace.

Network Rail engineers carried out essential track repairs in the tunnel near Ipswich train station. It started at 11pm and is expected to finish at 5am on Friday.

Rail services in Suffolk were delayed on Thursday night due to emergency engineering work.

The search and rescue operation off the coast of Felixstowe.

Two illegal immigrants plunged to their deaths in north-east Essex after desperately jumping from a ship in an attempt to swim to shore after a failed attempt to smuggle themselves in to the UK, an inquest has heard.

A Hyundai i20, BMW 120 and another vehicle, unknown at this stage, were involved in the collision on the A14 eastbound at Beyton at 7.50pm, police said.

A three-vehicle crash on the A14 near Bury St Edmunds injured three motorists tonight.

Strikes in Byford Road, Sudbury was hit by ram raiders

A stolen Land Rover was used to smash down the door of a bowling alley in Sudbury last night, before the raiders stole money and a change machine from inside the building.

Roe deer feeding in oilseed rape field, Suffolk, by Kevin Sawford

An award-winning wildlife photographer will be giving an illustrated talk on his craft to a group of like-minded enthusiasts.

A bus and a woman have collided in St Andrew's Street South, Bury St Edmunds.

A young woman has been taken to hospital after being involved in a collision with a bus in Bury St Edmunds.

A 27-year-old woman was jogging in Grove Road when a cyclist grabbed her buttock as he cycled past at around 6.30pm on Tuesday,  March 10.

Police are linking three sexual assault incidents in Felixstowe, it was announced today.

Most read

Most commented

Topic pages