Oil price weakness and falling clothing costs helped to turn inflation negative last month

INFLATION probably turned negative in August, according to some economists, due to oil price reductions being passed onto consumers and an increase in clothes prices in July reversing.

“We anticipate the headline annual inflation rate to fall from 0.1 per cent to minus 0.1 per cent,” said Vicky Redwood from Capital Economics. She added that earnings growth “seems likely to have regained a little pace”, after June’s bonus-related dip.

“Anecdotal evidence suggests that businesses are offering higher starting salaries to overcome job-matching difficulties,” said Redwood.

“We therefore expect headline pay growth to have strengthened marginally from 2.4 per cent in June to 2.5 per cent in July.”

Meanwhile, the Resolution Foundation, a think tank focused on living standards, predicts that average weekly earnings grew by between 2.7 per cent and 2.8 per cent in the three months to July, largely thanks to low inflation.

However, the group warned that while pay could return to pre-crisis levels by 2017 if economic trends continue, rising inflation could push that off-course.

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