Annual inflation fell back to zero in the year to June, down from 0.1 per cent in May, data published this morning by the Office for National Statistics revealed.
This takes the rate back into ‘noflation’, although CPI growth has hovered just either side of the zero mark for five months now. Here are the thoughts of some leading economists:
Rob Harbron, managing economist at the Centre for Economics and Business Research
One of the key factors bringing the rate down this month was the price of clothing, as summer sales started in June. The cost of air and sea transport also played a part, with prices rising between May and June this year by less than they did in 2014.
However, the cost of petrol offset this movement in the transport category to some extent, with prices at the pump continuing to slowly rise.
The last major factor bringing down the headline rate was the price of food, which continued to show month-on-month declines and reached the lowest level since October 2012.
“Although there are no significant inflationary pressures on the horizon, CEBR expects consumer price inflation to begin rising slowly again in the next few months.
“We do not expect any new declines in the price of oil of the same magnitude as those seen in the second half of 2014, which means that come the end of this year, petrol and home gas prices will no longer be much lower than they were 12 months before.”
By December, the think tank expects CPI inflation of around 1.5 per cent, which is still well below the Bank of England’s 2 per cent target, but this will start to “erode real wage growth again”.
“With inflation expected to start heading back towards the Bank’s target rate, alongside a likely continued pick-up in the UK economy, pressure will start to mount on the Monetary Policy Committee to begin raising the base rate. CEBR continues to forecast the first hike in interest rates in Q1 2016.”
Samuel Tombs, senior UK economist at Capital Economics
Mr Tombs has a differing view to the CEBR, predicting that the UK looks set for another brief period of deflation.
“The fall in oil prices from $64 (£41) per barrel to $56 (£36) per barrel over the last month will filter through to petrol prices quickly, while the 5 per cent trade-weighted appreciation of sterling since the start of the year will bear down further on food and consumer goods prices.”
However, he agreed that inflation should rebound towards the end of this year, although “it will take a long time for CPI inflation to return to its target”.
“The weakness of producer output price inflation – which was minus 1.1 per cent year-on-year in June – confirms that pipeline price pressures are still very soft.
He added that they remain upbeat on the scope for productivity to revive, preventing strong wage growth from pushing inflation up too much. “Accordingly, the UK’s inflation outlook looks neither too weak to cause the MPC alarm, nor too strong to force it to raise interest rates at any more than a gradual pace from next year.”
Ben Brettell, senior economist at Hargreaves Lansdown
Meanwhile, Mr Brettell agreed that there is currently “clear daylight” between wage growth and inflation, but continued low inflation means more pain for savers, because the Bank of England is under no pressure to raise interest rates in the immediate future.
He flagged up that core inflation, which strips out volatile components such as food and energy prices, also fell – to 0.8 per cent.
“This is the lowest reading since 2001 and shows that underlying inflationary pressures in the economy remain weak, perhaps due to the lower oil price feeding through to lower prices for other goods and services.
“Consequently there is still no real pressure on policymakers to raise interest rates in the short term, with the first rise pencilled in for the first half of next year at the earliest. International concerns will also be at the forefront of policymakers’ minds, not least the ongoing saga in the euro zone.”
donia.o’loughlin@ft.com
