Inflation falls to 31-month low of 2.4%

Published on 17/07/2012 10:17

THE rate of inflation dropped to a 31-month low of 2.4 per cent last month, official figures showed today, as record rainfall forced clothing retailers to bring forward their summer sales.

• CPI rate of inflation falls to 2.4 per cent in June

• Falling energy, food and commodity prices lead to reduction in living costs

The consumer price index (CPI) rate of inflation fell to a lower-than-expected 2.4 per cent in June, from 2.8 per cent in May, the Office for National Statistics (ONS) said. City analysts had forecast the rate to drop to 2.7 per cent.

The fall in CPI was driven by a record May-to-June decline in clothing and footwear prices, which the ONS said was more typical of the June-to-July period, reflecting earlier than average seasonal discounting.

Inflation has fallen from 5.2 per cent last September due to the waning impact of the VAT hike at the start of 2011, falling energy, food and commodity prices, and a number of bill cuts from utility providers.

Inflation is now within 0.5 percentage points of the Government’s 2 per cent target.

Chloe Smith, the Economic Secretary to the Treasury, said: “Inflation has more than halved since September, meaning a little less pressure on family budgets. This lower inflation should support high street spending and growth in the economy in the months to come.”

Last month’s drop will add weight to the Bank of England’s decision earlier this month to pump more emergency cash into the economy through its quantitative easing programme.

The steeper-than-expected fall is also likely to raise the likelihood of further emergency support later this year as the UK struggles with weak growth.

Britain’s economy entered a technical recession in the first quarter of the year as gross domestic product declined 0.2 per cent, following a 0.3 per cent drop in the final quarter of 2011.

The overall rate was also driven down by transport prices, which dropped 0.5 per cent as petrol and diesel prices continued to fall.

Consumers also benefited from lower fuel prices, as the price of petrol at the pump fell by 4.3p to 132.8p in June and diesel dipped by 0.7p to 135.6p.

Food also helped pull down the overall rate as prices edged 0.1 per cent lower. The ONS said the biggest fall within food came from meat prices, which fell 0.5 per cent, with reports that the recent washout weather had hit demand for barbecue foods.

The largest upward effect on prices came from recreation and culture, in which the price of digital cameras fell at a slower rate than last year.

Alternative measures of inflation also fell, as the retail price index fell to 2.8 per cent in June, from 3.1 per cent in May.