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Food and energy prices set to push inflation lower in July

The Consumer Prices Index (CPI) is expected to be 1.9%.

Food and energy will contribute to a decline in the inflation rate for July (PA)
Food and energy will contribute to a decline in the inflation rate for July (PA)

By Alys Key, PA City Reporter

Inflation is expected to have fallen in July, due to lower contributions from food and energy prices.

Consensus estimates predict Office for National Statistics (ONS) figures will reveal on Wednesday that the Consumer Prices Index (CPI) rate of inflation was down to 1.9% last month.

This follows two months of the rate sitting at 2%, dead on the Bank of England’s target.

CPI was last at 1.9% in March, after falling below the Bank’s target for the first time in two years in January.

With the next change to Ofgem’s standard variable tariff (SVT) cap not due until October, the contribution from electricity and natural gas is expected to decline as last year’s price rises are not repeated.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said energy would be a major factor for the rest of the year, but inflation is still set to rise in the medium-term.

“Lower energy prices will drive down inflation this year, but then it will come under upward pressure from sterling’s recent depreciation and continued momentum in labour costs,” he said.

Inflation in food will likely be lower, in line with a trend for decreasing prices in summer, while the services sector is also expected to be lower.

Contribution from the volatile computer games category is set to have declined in July, compared to a 4.1% rise this time last year.

Motorists will likely have been faced with smaller bills at the pumps, with fuel costs expected to have dropped in response to falling oil prices.

The data dump will come after last week’s shock GDP figures showed the economy shrank for the first time since 2012 in the second quarter.

PA

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