Record Rainfall Helps Inflation Fall Sharply
There has been an unexpected fall in the rate of inflation as clothing and footwear retailers slashed prices amid record summer rainfall.
Consumer price inflation (CPI) fell 0.4% in June to an annual rate of 2.4% - the lowest level for 31 months.
Economists had expected a flat reading, with food and transport costs easing only slightly but the Office for National Statistics said that the wet weather prompted high street discounting a month earlier than was normal.
Clothing and footwear costs tumbled 4.2%, leaving them 0.8% lower over the past 12 months.
The CPI figure is seen as good news for the economy, as slowing price increases gives the tightly-squeezed consumer further relief from the effects of wage growth failing to keep pace with rising prices.
It also provides the Bank of England with a clear downward trend for inflation since it hit a three-year high of 5.2% in September last year.
It will reassure policymakers that they had the scope to extend the programme of quantitative easing (QE) - seen as inflationary - earlier this month.
The asset purchase total was pushed to £375bn on July 5 to boost cash in the economy further.
The fall in the rate of inflation also means the CPI measure is now within 0.5% of hitting the Government's 2% target.
Chloe Smith, the Economic Secretary to the Treasury, said: "Inflation has more than halved since September, meaning a little less pressure on family budgets.
"This lower inflation should support high street spending and growth in the economy in the months to come."
Britain's economy entered a technical recession in the first quarter of the year as gross domestic product declined 0.2%, following a 0.3% drop in the final quarter of 2011.
A further contraction is forecast for the second quarter of 2012 before the Olympics help restore growth in this current quarter.
Labour Treasury spokeswoman Catherine McKinnell welcomed the fall in the inflation rate but said: "Families and pensioners are still facing a real squeeze on their incomes because of this Government's policies. "A family with children will lose an average of £511 from changes coming into force this year alone, according to the independent Institute for Fiscal Studies.
"We urgently need a change of course and a plan for jobs and growth to get our economy moving again, get people back to work and so get the deficit down."
Commenting on the inflation figures, the ONS said consumers benefited from lower fuel prices as the price of petrol at the pump fell by 4.3p on average to 132.8p in June and diesel dipped by 0.7p to 135.6p. Food also helped pull down the overall rate as prices edged 0.1% lower.
The ONS said the biggest fall within food came from meat prices, which fell 0.5%, with reports that the recent washout weather had hit demand for barbecue foods. The largest upward effect on prices came from recreation and culture, in which the price of digital cameras fell at a slower rate than last year. Alternative measures of inflation also fell, as the retail price index (RPI) which includes housing costs fell to 2.8% in June, from 3.1% in May.
what do you think?
That'll ding dang do for me my old tatties !!! Interest rates will stay low, happy days !!!!!
I received a call recently from a firm which had previously carried out some work for me. It was obvious they were touting for business. I need work doing but because the amount of VAT is astronomical I will have to leave it. What is daft is the fact that this company has its workforce sat twiddling its thumbs, and me wanting work done and the Governments VAT is preventing it. There must be millions of people out there in the same boat?
After such a long period of above-target inflation rates, the fall could mean that the Bank is more willing to inject extra money into the economy, via quantitative easing, this is the 3rd month in a row that inflation has fell.
Don't know why anybody should be 'happy' about this - prices are still rising but not going up as fast as they were. Re B Wises comment - it's not only VAT that's crippling industry - how about EU/ETS, Climate change levy, Aggregagtes tax, all the other 'green' taxes on electricity....... plus operating charges from local authorities. It's a wonder any business can afford to operate AT ALL.
Humans eat less meat when it rains? Wild birds eat the same amount of meat whether it rains or not? Of course! Wild birds don't bother cooking theirs. They like to leave it in the rain, preferably in mud.
So...if I were to spend a hundred quid on clothes/shoes (which is probably more than I spend on such things in a year) then multiply that by the 0.8%, I will have not spent (as opposed to 'saved') 80 pence(!) WOW!!!...my financial problems are over!!!... Anyone noticed the petrol creeping up in price again?....that one was pretty short lived, eh?
So when prices drop by 0.1% the Ons cuts inflation by 0.3%. When prices increased by 50% they increased inflation by 0.0001%. The ONS, the Coalition and the BoE are total idiots. The price of oil went up by 25% but petrol and diesel went up by 40%. Now oil has dropped by 40% but petrol and diesel has dropped by 3%. Train tickets have increased by 20%, 90% of food has increased by 50%, in fact all prices in 6 months have increased by 25-50% but if 1 item drops by o.3% then they say that inflation is falling.