Early summer sales tame UK inflation

Julian Harris
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EARLY summer sales in British stores saw consumer price inflation tamed down to 4.2 per cent in June, yet analysts still expect the index to rise above five per cent in the coming months.

“With surplus stock to shift, this year’s summer sales appear to have started relatively early, and perhaps with bigger price cuts than usual,” said Citigroup’s Michael Saunders.

Yet Saunders warned: “this [downward] effect is unlikely to persist in subsequent months”, as recent industry surveys show a dip in the number of retailers with excess inventories.

And prices face renewed upward pressures from the cost of food, according to the Office for National Statistics (ONS). Food and non-alcoholic drinks spiked by 0.9 per cent between May and June, the ONS said.

“Moreover, sizeable rises in household energy prices still lie ahead,” Saunders added.

Economists widely expect the consumer price index to touch five per cent or more in the autumn. Despite downwardly revising its forecasts last night, Barclays Capital forecasts 4.9 per cent in October and November.

Core inflation, which excludes the effects of energy and food prices (as well as tobacco), sank by half a per cent to 2.8 per cent in June – its lowest since November last year. The retail price index (RPI) slowed to five per cent in June, down from 5.2 per cent in May. The tax and price index (TPI) was down by the same amount, from 4.8 per cent to 4.6 per cent.

Yet the CPI rate remains over double the Bank of England’s two per cent target rate. “Today’s rate of inflation means hundreds of thousands of savers need accounts paying a staggering 5.25 per cent before they earn a real rate of return on their savings,” said Moneyfacts’s Sylvia Waycot.

“Anything less means they will fall into ‘the eroding spending power trap’ which has already wiped almost £600 off the spending power of £10,000 in just five years.”