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No increase in inflation before end of year, says finance expert

By Margaret Canning and PA

Published 19/08/2015

Danske Bank chief economist Angela McGowan
Danske Bank chief economist Angela McGowan

Inflation will remain in the doldrums for the rest of 2015 and pick-up at the start of next year will only be slight, a leading economist has predicted.

Danske Bank chief economist Angela McGowan spoke as the Consumer Price Index (CPI) measure of inflation reached 0.1% in July - edging up from zero in June.

And continued low inflation means that shoppers are still enjoying a long run of falling food prices.

There was a 2.7% year-on-year fall in the price of food and non-alcoholic beverages in July, the figures from the Office for National Statistics revealed.

It was the 13th month in a row of decreases, the longest such stretch in data going back to 1989.

Ms McGowan  said factors such as continued low oil prices and the strong pound could mean that an interest rate hike by Bank of England governor Mark Carney could be delayed until February next year.

And inflation would also follow the trend and remain subdued. "At Danske Bank we expect inflation to stay very low for the rest of the year and then pick up in January - although we think the pick-up in early 2016 will be smaller than previously anticipated," she said.

"Wage growth in the UK is now at a solid 2.8% year on year and inflation is low, so real wage growth is now at its highest level since September 2007."

Core inflation - which takes away external factors such as energy and food prices - was up to 1.2% from 0.8%, and that core inflation increase could trigger an earlier increase in rates.

"An extremely small adjustment of perhaps only 10 basis points in December or January would keep his (Mark Carney's) guidance and actions consistent," Ms McGowan said.

Richard Campbell, ONS head of CPI, said July marked the sixth month in a row when headline inflation had been at zero or close to it.

He said: "While households will have seen individual prices rise and fall, the overall shopping basket bought by the country remains little changed in price compared with a year ago.

"The latest slight increase is mainly due to clothing, with smaller price reductions in this year's summer sales compared with a year ago.

"Food and motor fuel prices continued to fall and have helped stop a larger rise in the rate of inflation."

Meanwhile, Sainsbury's has fired the latest shots in the supermarket price war, extending its Asda Brand Match offer to online shoppers.

From today, Sainsbury's will guarantee that online customers will not pay more for their internet purchase of identical branded groceries than they would at rival Asda.com.

The supermarket giant said customers will receive a confirmation that their online branded basket was cheaper at Sainsbury's. If not, they will receive a Brand Match money-off coupon worth up to a maximum of £10 that can be redeemed against their next online shop.

Previously this was only available to those who shopped in-store.

James Brown, partner at marketing consultants Simon-Kucher & Partners, has questioned just how long the supermarkets can continue discounting prices.

"The supermarkets are still trying to beat their rivals on price; however, it looks like they will struggle to push their suppliers much further on their prices."

Belfast Telegraph

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