15
Jul
UK inflation dips to 1.8% in June
A key measure of inflation has fallen below the Bank of
England's target rate of 2% for the first time since 2007.
Lower food prices caused the Consumer Prices Index (CPI) to drop
to an annual rate of 1.8% in June from 2.2% in May, official
statistics showed.
The Retail Prices Index (RPI) inflation measure, which includes
mortgage interest payments and housing costs, fell to -1.6% from
-1.1%.
The RPI is now at its lowest since ONS records started in
1948.
The Bank of England aims to keep inflation at 2% to maintain
price stability and more broadly, economic stability.
Consensus
Lower prices for meat, milk and fruit last month were the main
reason for the fall in inflation.
"A significant downward effect also came from furniture prices,
which rose by less than last year," the Office for National
Statistics said.
It also pointed to a large upward pressure on the CPI rate from
the recreation and culture sector, with computer games in
particular rising by more than a year ago.
The CPI is far below what it was last September, when the rate
hit 5.2% because of high oil and food prices.
The Bank of England is now predicting CPI will fall below 1%
this year, as the downturn hits demand and sends prices lower.
"The figures are bang on consensus," said economist Philip Shaw
of Investec.
"We note that food prices fell back on the month and the
increase in petrol prices was a little less than we'd factored
in."
He added that the RPI measure was negative because of
"aggressive" cuts in interest rates since last autumn.
Interest rates are now at a record low of 0.5%.
"To call this a period of deflation would be totally wrong," he
said
But not everyone agreed.
David Kern, head economist at the British Chambers of Commerce
said: "The figures confirm the BCC's assessment that in the
short-term, the main policy priority must be countering the risks
posed by recession and deflation".
In the near future the BCC is urging the Bank of England to
expand the scale of quantitative easing well beyond
£125bn.
Having lowered interest rates sharply the government has aimed
to increase the amount of money circulating to boost the economy,
though quantitative easing.
Stephen Bell, of hedge fund GLC, said: "Underlying inflation
will remain low for some time, which is good news for home [loan]
borrowers."
While it will be a "long hard struggle to recovery" he said the
positive message was that the UK economy was recovering faster than
other economies.
source: www.bbc.co.uk/news Wednesday 15th
July 2009