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Boost for Northern Ireland's consumers as inflation back in the negative

By Margaret Canning

Published 14/10/2015

Clothing and footwear prices rose by just 2.8% between August and September
Clothing and footwear prices rose by just 2.8% between August and September

Northern Ireland is benefiting even more than other UK regions from the continued era of low inflation - which has also eased the pressure on the Bank of England to raise interest rates.

Disappointing fashion sales over the summer contributed to a fall in the Consumer Price Index (CPI) rate of inflation from zero in August to minus 0.1% last month, while falls in food and petrol prices also pushed down the cost of living.

The Office for National Statistics (ONS) said clothing and footwear prices rose by 2.8% between August and September this year - below a 4% increase between the same months in 2014.

Price growth was the lowest since 2008, with disappointing summer weather contributing to a higher proportion of clothing on sale in September this year compared to the same time in 2014.

Muted CPI inflation leaves the prospect of a hike in interest rates - which have been at 0.5% for more than six years - unlikely well into next year.

It will spare borrowers higher repayment costs, but continue to hurt savers whose nest eggs have been eaten away by years of low rates. Last Thursday the Bank of England's Monetary Policy Committee (MPC) voted to leave interest rates at 0.5%.

Dr Esmond Birnie, PwC chief economist in Northern Ireland, said yesterday's announcement was the first negative monthly figure for CPI since April.

"A price war amongst the big supermarkets has led to grocery prices dropping by 2.5% over the past year, while growth in clothing prices has been less than normal. This moderate deflation is probably on balance a benefit to the economy.

"Real wages and living standards receive a welcome boost which will help to sustain consumer spending. Excluding food and energy, however, inflation is stable at 1% and services inflation has picked up to 2.5%."

He said falling inflation was a welcome trend for consumers. "Inflation around zero accompanied by stronger wage increases is boosting consumer incomes, household spending and supporting the UK recovery.

"This is particularly important in Northern Ireland where average wages are lower, energy prices are higher and the recovery is lagging the rest of the UK regions."

Danske Bank chief economist Angela McGowan said global commodity prices were also keeping fuel and food prices down and predicted that the low inflation would bottom out in September.

"Unless we see a further drop in commodity prices, the headline rate should now start to move slightly higher in the coming months before picking up to close to 1% in January 2016.

"When inflation starts to rise to around 1% or above we can be sure that we will start to hear a lot more noise from the Monetary Policy Committee about a small interest rate adjustment at the end of the first quarter of 2016 or early in the second quarter."

September was the 15th month in a row of falling prices in the food sector, extending the longest run since records began in 1989.

Chancellor George Osborne said on Twitter: "Inflation at minus 0.1% while wages rising at fastest rate in over a decade is a real boost for working families."

ONS head of CPI Richard Campbell said: "Though CPI has turned very slightly negative this month, the bigger picture is of a broadly flat inflation rate since the beginning of the year."

Belfast Telegraph

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