View the article online at http://citywire.co.uk/money/article/a604828
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.
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.
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by Gavin Lumsden on Mar 07, 2014 at 18:53