Inflation falls to 4.2% for June

• Discounts on electronic goods behind fall • News eases pressure for interest rate rise • Inflation on RPI measure drops to 5% Prospects of higher interest rates faded on Tuesday as official figures showed deep price cuts by hard-pressed retailers dragged the annual inflation rate down from 4.5% to 4.2% last month. The Office for National Statistics said bargain offers on electronic goods helped drag inflation lower in June and pulled the government’s preferred measure of the cost of living back towards its 2% target. City analysts had been expecting inflation, as measured by the Consumer Prices Index, to remain unchanged last month, but the first drop in prices in a June for eight years brought some welcome news for the Bank of England’s monetary policy committee. The ONS said there had been big price cuts in consumer games, consoles and other electronic goods last month as retailers sought to persuade cautious consumers to spend. Rising food prices continued to put upward pressure on inflation last month but the impact of higher supermarket bills was more than offset by the reductions on offer elsewhere in the high street. Core inflation – which strips out the impact of food and energy – dropped from 3.3% to 2.8% last month. Meanwhile, inflation as measured by the Retail Prices Index – the benchmark for many pay deals – fell to 5%. CPI inflation has been above target for the past 18 months, forcing Mervyn King, the Bank’s governor, to write a series of explanatory letters to George Osborne. A majority of the MPC’s members have been voting in recent months to keep interest rates at 0.5% in the belief that inflation will start to fall back towards its target once the one-off effects of higher taxes and the surge in commodity prices have ceased to affect the cost of living. Hetal Mehta, UK economist at Daiwa, said: “The fall in headline CPI inflation is completely unexpected, and the drop, particularly reflected in the core measure, points to the underlying weakness in the economy.” She added: “And with no signs of a particularly marked acceleration likely in the coming quarters, we now cannot see the Bank of England increasing interest rates for a long time to come – not just this year, but even next year for that matter.” While the inflation figures were better than expected, there was less good news for the government from the May trade figures, also released by the ONS on Tuesday. These showed Britain’s trade deficit with the rest of the world increased from £7.6bn to £8.5bn – its highest level since last December. Inflation Interest rates Economics Economic growth (GDP) Consumer spending Retail industry Larry Elliott guardian.co.uk

Posted by on July 12, 2011. Filed under News, Politics, World News. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.