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Inflation drops to 1.5% after fall in UK food and petrol prices Inflation drops to 1.5% after fall in UK food and petrol prices
(about 9 hours later)
A drop in food and petrol prices helped inflation edge lower last month, pushing it down to 1.5% from 1.6% in July, as measured by the consumer price index (CPI). Fierce price wars between supermarkets helped push inflation further down last month but the drop is expected to bring only limited relief to households as wages continue to stall.
Figures from the Office for National Statistics showed the wider retail prices index (RPI) measure, used to set many pay deals, was down to 2.4% on the year, compared with 2.5% in July. Official figures showed a fall in food and petrol prices helped inflation drop to 1.5% in August from 1.6% in July, as measured by the consumer price index (CPI).
Both rates were as forecast by economists and they said the relatively benign price pressure in the economy, with CPI below the 2% target, would mean the Bank of England would be in no hurry to raise interest rates. Its monetary policy committee (MPC) has held borrowing costs at a record low of 0.5% for more than five years. But separate labour market figures released on Wednesday are expected to show average earnings in the three months from May to July were up by just 0.5% on a year ago, only a third of the pace of price inflation.
The mismatch between pay and prices was evidence of the "cost of living crisis", the Labour party said. "While this fall in the rate of inflation is welcome, the squeeze on working people continues," said the shadow Treasury minister Catherine McKinnell.
The figures from the Office for National Statistics (ONS) also showed the core measure of inflation, which excludes the more volatile items like food and energy, picked up to 1.9% from 1.8%. The wider retail prices index measure, used to set many pay deals, was down to 2.4% on the year, compared with 2.5% in July.
Economists said the numbers suggested price pressures in the economy were benign, with CPI below the Bank of England's 2% target, and would mean the Bank would be in no hurry to raise interest rates. Its monetary policy committee (MPC) has held borrowing costs at a record low of 0.5% for more than five years. But a mixed picture of solid economic growth, falling inflation and uncertainty over the outcome of Thursday's Scotland referendum have made the timing of the first rate rise particularly hard to call.
"Inflation is still on a downward trend despite the economic recovery's strength," said Samuel Tombs, senior UK economist at Capital Economics."Inflation is still on a downward trend despite the economic recovery's strength," said Samuel Tombs, senior UK economist at Capital Economics.
"Although the low inflation outlook is unlikely to prevent the MPC from raising interest rates entirely over the next couple of years, it should limit the speed at which they rise.""Although the low inflation outlook is unlikely to prevent the MPC from raising interest rates entirely over the next couple of years, it should limit the speed at which they rise."
The Office for National Statistics (ONS) said falling food and non-alcoholic drink prices were behind much of the slowdown in the main CPI measure of inflation. That echoed business reports indicating that a fierce supermarket price war had brought down food prices. The ONS said falling prices of food and non-alcoholic drinks were behind much of the slowdown in the main CPI measure of inflation. That echoed business reports indicating food prices have been falling as supermarkets use discounts to lure back customers from value stores Aldi and Lidl.
With oil prices around two-year lows, pump prices also helped bring down inflation in August. Petrol fell by 1.8p a litre between July and August this year, compared with a rise of 2p a litre last year, the ONS explained. Offsetting some of those downward pressures were the prices of clothing, transport services and alcohol. With oil prices around two-year lows, cheaper fuel also helped bring down inflation last month. Petrol fell by 1.8p a litre between July and August, compared with a rise of 2p a litre last year, the ONS said. Offsetting some of those downward pressures were the prices of clothing, transport services and alcohol.
The Treasury welcomed the latest inflation numbers. "The government's long-term economic plan is working, with inflation falling by more than two-thirds since its peak in September 2011," said a spokesman. The Treasury welcomed the latest figures. "The government's long-term economic plan is working, with inflation falling by more than two-thirds since its peak in September 2011," said a spokesman.
Inflation on either measure is still several times average wage growth, continuing the pattern of pay falling in real terms. Official labour market data on Wednesdayis expected to show average earnings for May to July up just 0.5% on the year. They fell 0.2% on the year for April to June. Ministers are likely to get another boost from Wednesday's labour market figures, which are forecast to show the number of people claiming jobseeker's allowance falling below a million for the first time in six years. But the pay figures are likely to remain weak, with annual growth in average earnings recovering only slightly from a surprise drop in last month's data.
Responding to the inflation data, the shadow Treasury minister, Catherine McKinnell, said: "While this fall in the rate of inflation is welcome, the squeeze on working people continues." Last week the Bank of England's governor, Mark Carney, predicted interest rates would probably start to rise before real wage growth returned some time next summer.
Last week, the Bank of England's governor, Mark Carney, predicted that interest rates would probably start to rise before real wage growth returned some time next summer.
But economists said the squeeze on households would play some role in the outlook for borrowing costs.But economists said the squeeze on households would play some role in the outlook for borrowing costs.
Howard Archer, economist at IHS Global Insight, said: "We suspect that low inflation, current very weak earnings growth, and the increased downside risks to economic activity coming from heightened geopolitical tensions and stuttering eurozone economic activity will cause the Bank of England to hold off from acting until February at the earliest, even though current ongoing robust economic activity and markedly falling unemployment provides support to the case for a near-term interest rate hike." Howard Archer, economist at IHS Global Insight, said: "We suspect that low inflation, current very weak earnings growth and the increased downside risks to economic activity coming from heightened geopolitical tensions and stuttering eurozone economic activity will cause the Bank of England to hold off from acting until February at the earliest, even though current robust economic activity and markedly falling unemployment provides support to the case for a near-term interest rate hike.
The British Chambers of Commerce said the inflation figures reinforced the case against an early rate rise. Chief economist David Kern said: "The main priority for the MPC must be to nurture business confidence by offering the stability of working in a low interest rate environment