Belfast Telegraph

Inflation fall boost for family incomes

By Jamie Grierson and Clare Weir

Household incomes in Northern Ireland could grow thanks to a fall in inflation, a local economist has said.

Dr Esmond Birnie, chief economist with PriceWaterhouseCooper in Northern Ireland, said that inflation is heading steadily towards the target rate of 2%, as predicted last week in PWC's latest UK Economic Outlook.

"If these declines are sustained it creates a real possibility of household incomes growing in real terms, helping to stimulate consumer spending and encouraging recovery," he said.

"However, threats to the UK and particularly UK regional economies from the continuing eurozone crisis remain and we should not discount the possibility that global oil prices could rise again. Nonetheless, the steady fall in inflation is good news and we should take is as an indicator that some of the pressures on the region's households are reducing for the present at least."

He was speaking as it emerged that record rainfall dampened retailers' pricing power and dragged the rate of inflation down to a 31-month low.

The wettest June since records began in 1910 saw clothing retailers bring summer sales forward while food stores suffered from a lack of demand for barbecue meat.

The consumer price index (CPI) rate of inflation subsequently fell to 2.4% in June, from 2.8% in May, the Office for National Statistics (ONS) said.

Some economists said inflation would continue to fall - possibly below 1% - while unions said the drop in inflation was not enough as wage growth was still too weak.

Inflation has fallen from 5.2% last September to within 0.5 percentage points of the Government's 2% target, due to the waning impact of the Vat hike, and falling energy, food and commodity prices.

Economic Secretary to the Treasury Chloe Smith 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."

The fall in CPI was driven by a record May-to-June decline in clothing and footwear prices, reflecting earlier seasonal discounting. The overall rate was also driven down by transport prices, which dropped 0.5% as the price of petrol at the pump fell by 4.3p to 132.8p in June and diesel dipped by 0.7p to 135.6p. Food helped pull down the overall rate after recent washout weather hit demand for barbecue foods.

But the most recent figures on wages growth showed average earnings increasing by 1.4% in the year to April, far below inflation.

TUC general secretary Brendan Barber said: "While the sharp fall in inflation will bring welcome relief for many workers, millions are still facing real wage cuts."