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Summer sales and cheaper fuel drag down UK inflation

Consumer prices index (CPI) falls to its lowest level since November 2009, but remains above the Bank of England's 2% target.

Summer sales and cheaper fuel drag down UK inflation

Inflation fell sharply in June, with the consumer prices index (CPI) dropping to 2.4%, its lowest level since November 2009.

The prices of clothing and footwear dropped sharply, with the Office for National Statistics noting reports that shops had started their summer sales earlier than last year. Food costs also fell, and transport dragged the number down as petrol and diesel prices dropped.

While still above the Bank of England’s 2% target, CPI has been coming down since peaking at 5.2% in September last year. Today’s reading confounds economists’ expectations of a much smaller fall from May's 2.8% reading.

The retail prices index (RPI) has also been falling, dropping to 2.8% in June from 3.1% in May.

The inflation decline helps consumers, while also giving the Bank of England the leeway it needs to extend its recession-fighting quantitative easing (QE) scheme.

While the CPI reading, unlike RPI, does not include housing costs, it is the government's preferred measure of inflation, used for the indexation of benefits, tax credits and public service pensions, as well as the basis of the Bank of England's inflation targeting.

Today’s inflation numbers are the first in a string of important data due on the struggling UK economy this week, with data due on unemployment, earnings and retail sales, while the minutes of the July meeting of the Bank of England’s monetary policy committee are also due tomorrow.

4 comments so far. Why not have your say?

Chris Powell

Jul 17, 2012 at 12:28

'While the CPI reading, unlike RPI, does not include housing costs, it is the government's preferred measure of inflation, used for the indexation of benefits, tax credits and public service pensions' This good news. The main issue with the deficit last year was the 5.2% inflation in September. The government used this one month (it may be August) to determine inflation linked increases for welfare. Let's hope the CPI falls even more! Welfare is what is killing the UK!

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Alan Tonks

Jul 17, 2012 at 13:30

What according to the Government is inflation; it is something they can play around with and lie about.

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Anonymous 1 needed this 'off the record'

Jul 17, 2012 at 16:59

Sounds like time for the unelected body of individuals known as the Bank of England to step up and start manipulating national interest rates again to help the government pay for its mistakes by stimulating further inflation. Oh hang on...they just announced the latest round of QE last week didn't they? Looks like the BoE's new clandestine goal is to keep inflation above 3%! Does anyone really believe any more that they have any interest if bringing it down to 2%?

And all this because they wouldn't allow capitalism to take its course and rid us of our incompetent cheating dishonest private banks. Now instead they have to stimulate inflation to erode the debt at the expense of all those people that spent their entire lives working to build up a pension in sterling. Thankfully I'm only halfway through my working life and will not be trusting the financial services industry with my pension. They've more than proved that they are not to be trusted.

It's worth remembering that British debt wasn't really that out of control until we had to bail out the banks.

None of this economic meddling (robbery) would either be possible or even necessary if we had a currency backed with a gold standard.

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Jul 18, 2012 at 11:46

Anon 1 - the cost of the bank bailout was peanuts compared with the true National debt taking into account all liabilites, such as pensions, which comes to around £80,000 per household.

And, of course the taxpayer made a profit out of the bank bailout as the Treasury had all of the tax receipts from the money the banks lost as it was spent by the borrowers, which far exceeded the cost of the bailout. The real losers were the shareholders who took the brunt of the losses - such as our pension and savings funds. Many of these lost 15-20% when the banks went down. That is where the money cam from.

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