Inflation drops to 2.4%, lowest in 31 months

Written on:July 17, 2012
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Family shopping for groceries

Happy shopping!...Commodity prices drive down inflation

UK consumers can heave a sigh of relief as inflation fell to a 31-month low, with the Consumer Price Index (CPI) dropping from 2.8% to 2.4%, and the Retail Price Index (RPI) falling from 3.1% to 2.8%, owing to a big drop in commodity and oil prices.

June saw a sharp drop in commodity and oil prices leading to the smallest rise in fuel prices since October 2009, while bringing down the headline inflation rate. Significant contribution to the fall came from clothing and footwear, which was twice as large as the second largest fall in month-on-month inflation since the CPI was launched in 1996.

Howard Archer, chief UK and European economist at IHS Global Insight, said, “Apart from their direct impact on the inflation rate, lower petrol prices also reduce the cost of transporting goods around so that should also have helped to limit inflation. It is also likely that annual food price inflation fell in June.”

Inflation has fallen from 5.2% 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 in February.

It may be noted that the economy entered into a technical recession in the first quarter of the year, with gross domestic product declining 0.2%, following a 0.3% drop in the final quarter of 2011. The weaker growth has started to weigh on prices as retailers sacrifice profit margins in a bid to draw in cash-strapped consumers.

Azad Zangana, European Economist at Schroders warned that the easing may be temporary in nature as the Office for National Statistics has had problems in reporting price information when retailers offer discounted sales.

Related:
Markit survey predicts comfortable days ahead for Brits
Eurozone inflation falls to lowest level in 15 months

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