Fuel price dip cuts inflation rate for June
FALLING fuel prices helped annual inflation to ease in June for the second month in a row but core inflation, which excludes energy and food costs, worrying rose last month, official data showed yesterday.
The Office for National Statistics (ONS) revealed the consumer prices index (CPI) eased to 3.2 per cent last month from 3.4 per cent in May. Economists had expected a sharper fall in headline inflation.
However, the narrower core measure unexpectedly rose to to 3.1 per cent, the joint highest since records began in 1997. “The obvious surprise was the rise in the core rate, which serves to underline this theme of price stickiness,” said Ross Walker, UK economist at RBS. “Clearly it’s not falling as much as we’d hoped and it’s not making the Bank of England’s job any easier.”
Barclays Capital’s Simon Hayes agreed, saying: “The resilience of inflation seems set to remain a thorn in the side of the MPC.”
The retail prices index (RPI) fell to five per cent while the RPIX – which strips out mortgage interest payments – also fell to five per cent.
Many economists expected inflation to remain high for all of 2010. Citi’s Michael
Saunders said: “We expect that CPI inflation will generally stay in a 3-4 per cent range for the rest of this year and into 2011, with RPI inflation above four per cent.”
Henderson’s Simon Ward said: “The Bank is likely to be forced to revise up its forecasts of 2.54 per cent and 2.28 per cent in the third and fourth quarters significantly in the August Inflation Report. He added: “On conservative assumptions, inflation may average 2.75 per cent in the fourth quarter before returning to three per cent in early 2011 as VAT is raised.”
In a separate report published today, the Centre for Economic and Business Research (CEBR) updated its forecasts for UK GDP growth and said that a double-dip was unlikely.
The economy is forecast to grow by 1.2 per cent this year, followed by 1.6 per cent in 2011, 2012 and 2013 – slightly higher than previously forecast. In contrast, it has revised down its 2014 projection to around two per cent. The outlook for the labour market is far weaker in the CEBR’s scenario than in the OBR projections.