UK: Inflation edges lower – for now

THE rate of inflation edged lower last month as higher petrol pump prices were offset by softer clothing costs and utility bills, official figures revealed today.

The consumer price index (CPI) rate of inflation fell to 2.5% in August, from 2.6% the previous month, the Office for National Statistics (ONS) said.

The decline came as furniture prices, gas and electricity bills and clothing costs rose by less than a year ago, the ONS said.

But the rising cost of fuel at the pumps maintained upward pressure on the cost of living and is likely to increase fears that the rate of inflation will not fall as rapidly as hoped by the Bank of England, maintaining the squeeze on struggling households.

The CPI rate of inflation hit a 31-month low in June after steadily declining from a peak of 5.2% last September but unexpectedly rose to 2.6% in July.

A spokesman for the Treasury welcomed the figures. He said: “Inflation coming down is good news for households and business. The rate of CPI inflation has now more than halved since its peak last September, bringing welcome relief to budgets.”

But economists have warned that the squeeze on consumers is expected to return as droughts in the US are likely to mean higher food prices while more energy price hikes are in the pipeline this autumn. Higher university tuition fees will also add to inflation next month.

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The forecasts will trouble the Bank of England, which is tasked with keeping inflation as close to the Government’s 2% target as possible, after it previously said the rate would fall throughout 2012 and into 2013.

The bank stepped up its quantitative easing emergency support programme in July, from �325 billion to �375 billion, which has drawn criticism by pension campaigners due to its adverse impact on inflation.

The most significant upward pressure on prices came from transport, specifically motor fuels, the ONS said.

Average petrol prices increased by 3.5p a litre to 135.1p in August, while diesel rose by 3.3p to 140.3p, which both compare to smaller rises last year.

Furniture, household equipment and maintenance prices rose by 0.8% in August, less than the 2% rise in the same period last year, with the main downward effect coming from lounge furniture and “tufted” carpets.

There was also a slight downward effect from non-durable household goods such as bleach and household cleaner cream.

Housing and household services saw prices rise by 0.1%, compared to 0.5% the previous year.

The main downward effect came from gas and electricity bills which were unchanged this year, compared to rises of 1.7% and 1% respectively last year.

Meanwhile, clothing prices rose by 2.8% between July and August but this compared to a record 3.7% rise a year ago. The most significant downward pressure came from menswear.

Other measures of inflation also fell with the retail price index dropping to 2.9% in August, from 3.2% in July.

The pressure faced by households was underlined by jobs market data released last week as average earnings growth in the quarter to July slowed to 1.5%, far behind the rate of inflation.