Inflation down as prices are cut

Inflation unexpectedly fell last month as retailers cut prices in response to the tightening squeeze on household incomes, figures revealed today.

Reductions in the prices of digital cameras, televisions and women's shoes prompted a fall in the Consumer Prices Index (CPI) to an annual rate of 4.2% in June, the Office of National Statistics (ONS) said, against consensus City forecasts of no change from May's figure of 4.5%.

Figures from the ONS showed the price of televisions and other audio-visual products fell by 3.1% month-on-month, while camera prices tumbled by 7.4%, with the recreation sector overall seeing a record monthly fall of 0.9 percentage points as there were also reductions in prices of computer games and computer consoles as shops promoted heavily to shift stock.

Another significant faller was clothing and footwear as summer sales began early, especially in women's shoes and fashions, where prices fell 1.9% from May.

The falls offset another sharp rise in food costs in June, with prices up 0.9% month-on-month to make an annual increase of 6.9%. Increases in June were across the board but especially in essentials such as bread, cereals, meat, milk, cheese and eggs, squeezing household incomes even harder.

Today's figures highlighted the pressure on electrical goods retailers after sector leaders Comet and Argos recently reported falling sales.

There were also falls in the broader measures of inflation that include house costs, with the Retail Price Index (RPI) falling from an annual rate of 5.2% to 5% and the adjusted number, RPIX, falling to 5% from 5.3%.

Regulated fares for rail passengers for next year will be set on the basis of the July's measure for RPI plus 3%.

Encouragingly for the Bank of England, which has been under pressure to raise interest rates, there was a sharp fall in core inflation. This measure, which strips out volatile movers such as food and energy, dropped to 2.8%, the lowest figure since last November.

Economists welcomed the figures as they said it gives the Bank of England some leeway to increase its current £200 billion quantitative easing programme as concern grows that the UK economy has stalled in recent months.

Trade figures also announced today highlighted these concerns as they showed an unexpected increase in the goods trade deficit.

Chris Williamson, chief economist at Markit, said: "The trade figures will certainly add to calls for a further loosening of policy via more quantitative easing, especially given the surprise dip in inflation to 4.2%."

But unions suggested the CPI reduction would be little help to people squeezed by rising prices and flat incomes.

TUC general secretary Brendan Barber said: "With the labour market weak, growth at a standstill, and both business and consumer confidence down, inflation is the only measure that's bounced back since the recession, creating a toxic mix for families' living standards."

Inflation is forecast to pick up again in the autumn as recent hefty increases in the price of gas and electricity from suppliers feed through into the figures.

Last week, British Gas said it would put up its gas prices by an average 18% and its electricity prices by an average 16% to follow earlier rises by Scottish Power. The other four members of the "big six" group of energy suppliers are expected to follow suit.

Month-on-month, the CPI fell by 0.1 percentage points, the first fall in prices between May and June since 2003.

Despite this surprise fall, it is the 19th month in a row that annual inflation has exceeded the Bank of England's target of 2%.

Start your day with The Independent, sign up for daily news emails
Have you tried new the Independent Digital Edition apps?
ebooksA special investigation by Andy McSmith
Kim Wilde began gardening in the 1990s when she moved to the countryside
peopleThe singer is leading an appeal for the charity Thrive, which uses the therapy of horticulture
Alexis Sanchez celebrates scoring a second for Arsenal against Reading
Life and Style
An easy-peel potato; Dave Hax has come up with an ingenious method in food preparation
voicesDave Hax's domestic tips are reminiscent of George Orwell's tea routine. The world might need revolution, but we like to sweat the small stuff, says DJ Taylor
Japan's population is projected to fall dramatically in the next 50 years (Wikimedia)
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Recruitment Genius: Project Implementation Executive

£18000 - £23000 per annum: Recruitment Genius: They work with major vehicle ma...

Recruitment Genius: Chiropractic Assistant

£16500 per annum: Recruitment Genius: A Chiropractic Assistant is needed in a ...

Recruitment Genius: Digital Account Executive - Midlands

£18000 - £26000 per annum: Recruitment Genius: They work with major vehicle ma...

Recruitment Genius: Web Developer

£28000 - £30000 per annum: Recruitment Genius: This company provides coaching ...

Day In a Page

NHS struggling to monitor the safety and efficacy of its services outsourced to private providers

Who's monitoring the outsourced NHS services?

A report finds that private firms are not being properly assessed for their quality of care
Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

The Tory MP said he did not want to stand again unless his party's manifesto ruled out a third runway. But he's doing so. Watch this space
How do Greek voters feel about Syriza's backtracking on its anti-austerity pledge?

How do Greeks feel about Syriza?

Five voters from different backgrounds tell us what they expect from Syriza's charismatic leader Alexis Tsipras
From Iraq to Libya and Syria: The wars that come back to haunt us

The wars that come back to haunt us

David Cameron should not escape blame for his role in conflicts that are still raging, argues Patrick Cockburn
Sam Baker and Lauren Laverne: Too busy to surf? Head to The Pool

Too busy to surf? Head to The Pool

A new website is trying to declutter the internet to help busy women. Holly Williams meets the founders
Heston Blumenthal to cook up a spice odyssey for British astronaut manning the International Space Station

UK's Major Tum to blast off on a spice odyssey

Nothing but the best for British astronaut as chef Heston Blumenthal cooks up his rations
John Harrison's 'longitude' clock sets new record - 300 years on

‘Longitude’ clock sets new record - 300 years on

Greenwich horologists celebrate as it keeps to within a second of real time over a 100-day test
Fears in the US of being outgunned in the vital propaganda wars by Russia, China - and even Isis - have prompted a rethink on overseas broadcasters

Let the propaganda wars begin - again

'Accurate, objective, comprehensive': that was Voice of America's creed, but now its masters want it to promote US policy, reports Rupert Cornwell
Why Japan's incredible long-distance runners will never win the London Marathon

Japan's incredible long-distance runners

Every year, Japanese long-distance runners post some of the world's fastest times – yet, come next weekend, not a single elite competitor from the country will be at the London Marathon
Why does Tom Drury remain the greatest writer you've never heard of?

Tom Drury: The quiet American

His debut was considered one of the finest novels of the past 50 years, and he is every bit the equal of his contemporaries, Jonathan Franzen, Dave Eggers and David Foster Wallace
You should judge a person by how they peel a potato

You should judge a person by how they peel a potato

Dave Hax's domestic tips are reminiscent of George Orwell's tea routine. The world might need revolution, but we like to sweat the small stuff, says DJ Taylor
Beige is back: The drab car colours of the 1970s are proving popular again

Beige to the future

Flares and flounce are back on catwalks but a revival in ’70s car paintjobs was a stack-heeled step too far – until now
Bill Granger recipes: Our chef's dishes highlight the delicate essence of fresh cheeses

Bill Granger cooks with fresh cheeses

More delicate on the palate, milder, fresh cheeses can also be kinder to the waistline
Aston Villa vs Liverpool: 'This FA Cup run has been wonderful,' says veteran Shay Given

Shay Given: 'This FA Cup run has been wonderful'

The Villa keeper has been overlooked for a long time and has unhappy memories of the national stadium – but he is savouring his chance to play at Wembley
Timeless drama of Championship race in league of its own - Michael Calvin

Michael Calvin's Last Word

Timeless drama of Championship race in league of its own