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Inflation stays at all-time low of 0.6% but experts say rise in rate is in the pipeline

By John Mulgrew

Published 14/09/2016

Fuel prices fell in August
Fuel prices fell in August

Inflation remains at an historical low of 0.6% but consumers are likely to see prices "slowly edge back" to previous levels, partly due to the slump in sterling.

It was unchanged last month as rising food and transport prices were offset by a slip in the cost of clothing, wine and hotel stays.

But according to Ulster Bank chief economist Richard Ramsey, the low levels are not expected to last.

"Consumer price inflation remains at historically low levels," he said.

"However, the marked depreciation in sterling in recent months will become increasingly visible with consumer prices in the months ahead.

"Indeed, businesses have seen their input costs rise by 7.6% over the year to August. This follows a period of two-and-a-half years of falling input costs.

"Consumers should take note that this means price rises for them are already in the pipeline."

The Consumer Price Index (CPI) inflation stalled in August after rising in June and July by 0.5% and 0.6% respectively, the Office for National Statistics (ONS) said.

PwC's chief economist in Northern Ireland, Esmond Birnie, commented: "We are probably going to see a slow edge back to 2% by 2017. With a lower pound, producers are likely to pass on higher input and raw material costs."

Some economists had been pencilling in a rise of 0.7%.

The ONS said there was "little sign" of the plunge in the value of the pound to 31-year lows following the Brexit vote being passed through to consumer prices.

However, the Producer Prices Index was impacted by the slump in the value of sterling, with input prices rising 7.6% in the year to August, and imported material prices climbing by 9.3% over the period.

The fall in the value of the pound makes British goods cheaper to export on the global market, but makes imported goods and products more expensive.

The Retail Prices Index (RPI), a separate measure of inflation, which includes housing costs, fell to 1.8% in August, down from 1.9% in July.

Mike Prestwood, head of inflation at the ONS, said: "Fuel costs falling more slowly than a year ago, as well as rising food prices and air fares, all pushed up CPI in August, but these were offset by hotels, wine and clothing, leaving the headline rate of inflation unchanged.

"Raw materials costs have risen for the second month running, partly due to the falling value of the pound, though there is little sign of this feeding through to consumer prices yet."

The main upward pressure on CPI came from transport prices, which jumped by 0.9% between July and August, as motor fuels fell by less than they did a year ago. The price of petrol at the pump dropped by 1.8 pence a litre to 110 pence in August, while the price of diesel also edged down 1.2 pence per litre to 111.8 pence.

Diesel prices had fallen by 6.2 pence a litre in August 2015.

Air fares were also pushing up the cost of travel, increasing by 14.4% between July and August as European routes became more expensive.

Meanwhile, food prices rose by 0.6% over the period, compared with a 0.2% fall between the same two months last year. Breads, cereals and meat products all proved pricier in August.

The jump in prices comes despite a supermarket price war raging through UK's fiercely competitive grocery sector, which has seen the big names slash grocery prices to protect their market share from the rise of German discounters such as Lidl.

The main downward impact on CPI came from restaurants and hotels, which saw prices drop by 0.4% between July and August.

Clothing and footwear prices also helped push up the cost of living, rising by 1% over the period.

Belfast Telegraph

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