Monetary PolicyAug 15 2017

Inflation surprise as price growth stalls in July

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Inflation surprise as price growth stalls in July

The CPI measure of inflation for July remained unchanged from the previous month's reading, as falling motor fuel prices were offset by price increases elsewhere.

CPI came in at 2.6 per cent, a level to which it fell in June, mainly driven by a lower oil price. Motor fuel prices fell once again last month but other moves balanced this out, according to the Office for National Statistics (ONS). Annual transport inflation fell to 3.1 per cent from 3.7 per cent in June.

"The price of motor fuel continued to fall and provided the largest downward contribution to change in the rate between June and July 2017," the ONS said.

"This was offset by smaller upward contributions from a range of goods and services, including clothing, household goods, gas and electricity, and food and non-alcoholic beverages."

The figure, which was below a market consensus of 2.7 per cent, will mean there is even less pressure on the Bank of England's Monetary Policy Committee (MPC) to raise interest rates in the near future. Earlier this month the MPC voted by a 6-2 majority to maintain rates at their 0.25 per cent level, following on from weaker-than-expected inflation in June and Q2 GDP figures.

Some commentators believe inflation could tick up further, as sterling weakness continues to influence prices.

"We still think that inflation will climb to about 3 per cent by around October, as the effects of sterling’s slide continue to be feed through. However, that should be inflation’s peak," said Paul Hollingsworth, UK economist at Capital Economics.

Ian Kernohan, an economist at Royal London Asset Management, agreed that sterling depreciation could have further effects, but added that inflation was "close to topping out in the immediate future".