Inflation dipped in August

Inflation dipped in August continuing a positive trend, UK price rises were trimmed in August, compared to the previous month, according to the Office for National Statistics (ONS).

Both the Consumer Prices Index (CPI) and the Retail Prices Index (RPI) – which also includes housing costs – measures fell during the month, with the CPI change dipping to 2.5% in August, against 2.6% recorded in the previous month and the RPI movement showing a drop to 2.9% from 3.2% in July.

The ONS stated that factors behind the fall in the CPI were smaller rises in gas prices and furniture costs. Whilst reporting this data, the ONS also said that they will be consulting on possible changes to their RPI calculation methods between the 8th of October and the 30th of November this year.

Given that CPI inflation peaked at 5.2% in September 2011, these new figures are good news for consumers, the Bank of England, who have been set a target of 2%, and the Government. The expected drop in demand in the UK economy should result in inflation continuing to decline towards this 2% target in the short term.

This said, the ONS did warn that there remain a few factors that may put upward pressure on prices. Mr Richard Campbell, an ONS director, was quoted as saying:

“Some of the utility companies are talking about price increases in the next few months, while there have been reports of poor harvests in many parts of the world, which could possibly have an impact on food prices.

“Finally, if the oil price continues to go up, we expect that to feed through to petrol and diesel prices.”

With the UK economy having contracted over the past three quarters and the Bank of England’s additional Quantitative Easing (QE) programme worrying analysts that it would stoke inflationary pressure, these lower CPI and RPI figures eased their concerns in this regard.

Our monthly economic review is intended to provide background to recent developments in investment markets as well as to give an indication of how some key issues could impact in the future.

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