Belfast Telegraph

Friday 29 August 2014

Inflation slightly down to 2.7%

Clothing and footwear inflation came in at two per cent, compared with 2.8 per cent last year, the figures showed

Inflation eased back to 2.7% in August as retailers kept a lid on the prices of new autumn ranges while petrol pump rises slowed, official figures show.

The fall in the Consumer Price Index (CPI) from an annual rate of 2.8% in July was also spurred by a lower rise in air fares than last year, according to the Office for National Statistics.

Figures showed a month-on-month increase of 0.4%, which was the lowest August rise since 2009. But the Retail Price Index (RPI), a separate measure calculated in a different way, rose from 3.1% to 3.3%.

The fall in the CPI rate came as clothing and footwear inflation came in at 2%, compared with 2.8% last year, at a time of year when retailers are introducing new full-price autumn ranges.

Meanwhile, petrol prices rose 2p per litre compared with a rise of 3.5p per litre in the same month last year, mirroring movements in oil prices. Air fares were up 9.4% compared with 10.2% a year ago, with the main downward effect coming from domestic routes. Upward contributions to CPI came from furniture and furnishings, major appliances and small electrical goods such as fans.

Annual inflation for food and non-alcoholic beverages rose to 4.1% from 3.9% while there were also higher prices for games, toys and hobbies, adding to the pressure on hard-pressed families as wage rises still lag behind the cost of living increases.

Recently introduced experimental measures of inflation such as CPIH, which includes housing costs, and RPIJ, created to iron out the gap formed by the different methods of calculating the price of goods, stood at 2.5% and 2.6%, unchanged from July.

The Treasury said: "The economy is turning a corner, but the recovery is in its early stages and risks remain. The only way to deliver a sustained improvement in living standards is to tackle the economy's problems head on and deliver a recovery that works for all."

Policymakers have been forced to tolerate above-target inflation as they keep interest rates low to try to nurse the recovery back to health. But Bank of England governor Mark Carney has pledged that if it looks set to rise to 2.5% on an 18-month to two-year horizon, the Bank could move to raise rates. The condition was set out in the details of the Bank's flagship "forward guidance" pledge by the Monetary Policy Committee (MPC) to keep interest rates at 0.5% until unemployment falls to 7%.

Samuel Tombs of Capital Economics said weak output prices and past movements in commodities suggested inflation had further to fall. He said: "We continue to think that CPI inflation is likely to fall back to the 2% target within the next few months - a development that would help to ease the squeeze on households' real earnings and cool fears in the markets that one of the inflation knockouts to the MPC's forward guidance is likely to be breached."

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