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Rates of Inflation

The rate of inflation fell to 4.2% in June, according to the Consumer Price Index (CPI). This news has come as rather a surprise in the business sector, especially as the level was expected to stay at 4.5% as in previous months.

There was also a recorded fall of inflation levels by Retail Prices Index (RPI), whose figures include mortgage interest payments, falling from 5.2% to 5.0%. These figures, collated by the Office of National Statistics, correlate with the poor retail results released on Tuesday by the British Retail Consortium.

The lower rates are being blamed on various companies lowering prices on things such as games and hobbies, toys, and women’s clothing due to decisions to start summer sales early. However certain sectors continue to rise in costs – food prices rose by another 0.9% in June – with notable increases in bread and meat products amongst others.

Although unexpected, these figures are not of particular worry to the business community however, as it still means that the rate has not overly damaged the Bank of England’s 2% target for 35 of the past 41 months, which intends to keep inflation within 1% either side of the 2% mark, i.e. between 1% and 3%.

The Monetary Policy Committee of the Bank of England voted to keep interest rates at 0.5%, and these figures of inflation rates seem to make it more likely that interest rates will remain at their current record low.

However there was a drastic drop in the rate of core inflation, which focuses on the most stable parts of the economy and does not count the more volatile, from 3.3% to 2.8%. Experts have interpreted this as a potential sign of the current limits and weaknesses of household spending and the effects this is having on the price pressures of the high street.

However, the recent rise of household energy bills and rises in commodity prices has caused many predictions that levels of inflation will increase again, with figures expected to reflect this from August onwards.

By Sean Dudley


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