Shop prices hold down inflation

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RECORD FALLS in consumer goods prices made up for rising services costs and held inflation at its lowest level for six years, according to figures published yesterday.

The headline annual inflation rate was unchanged at 1.3 per cent in June, its lowest rate since the 1.2 per cent recorded in June 1993. Underlying inflation rose to 2.2 per cent from 2.1 per cent in May, but was still below the Government's target of 2.5 per cent.

The figures showed a growing divergence between inflation in goods prices and inflation in the service industries.

The index of all goods rose 0.9 per cent, staying at its lowest level since records began in 1987. Prices of "big ticket" consumer purchases such as furniture and electrical goods - often seen as a sign of a consumer boom - fell 3.3 per cent, the largest dip on record. But the all services index rose 3.3 per cent, the 16th month it has stayed above 3 per cent. The key upward pressure came from rises in alcohol prices, especially in off-licences and supermarkets.

Economists were divided over the implications for rates.

Some said that the lack of inflationary pressures on the high street had opened the door for the Bank of England's Monetary Policy Committee to make more cuts.

But others said signs that economic activity is accelerating would keep rates on hold.