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June CPI inflation figures – maybe interest rates will remain

The CPI for June showed prices flat over the month, whereas prices rose by 0.2% between May 2016 and June 2016. The consensus had been for a 2.9% annual rate, so the 0.3% drop to 2.6% surprised the markets. The CPI/RPI gap widened to 0.9%, with the RPI annual rate now standing at 3.5% (down 0.2% on May’s annual figure). Over the month alone, the RPI was up 0.2%.

The Office for National Statistics (ONS) newly favoured CPIH index was down 0.1% to 2.6% for the year, its first decline since April 2016. The ONS put the fall down to a variety of factors:


Transport: The largest downward effect came from transport, in particular motor fuels. Fuel prices fell by 1.1% between May and June 2017, the fourth successive month of price decreases. Over the same period last year, fuel prices rose by 2.2%.

Recreational and culture: This category also made a substantial downward contribution to annual inflation with overall prices dropping by 0.1% between May and June 2017, compared with a rise of 0.6% a year ago. The move downward partially reverses the upward pressure seen between April and May 2017 and comes from a variety of areas, principally data processing equipment, cultural services, and games, toys and hobbies.


Furniture and household goods: This category gave largest upward contribution with overall prices up by 0.5% compared with a 0.3% fall between May and June 2016. The upward effect came from prices for a variety of bedroom, kitchen and lounge furniture.

Core CPI inflation (CPI excluding energy, food, alcohol and tobacco) was down 0.2% at an annual 2.4%. All twelve index components remain in positive annual territory, with the lowest pair (recreation and culture and communication) now +1.5%. Food and non-alcoholic beverage inflation is now running at +2.3%, against -1.1% at the end of 2016.  Goods inflation fell 0.3% to 2.6%, while services inflation decreased by 0.1% to 2.9%.

Producer price inflation (PPI) eased again. The input PPI figure fell back from 12.2% in the year to May 2017 to 9.9% in the year to June 2017. Since the start of 2017 the input PPI annual rate has dropped by 10.0%, a reminder of its volatility. Output price (aka factory gate price) inflation fell 0.3% to 3.3%.

The surprise drop annual CPI figure eases the pressure for an interest rate rise when the Bank of England’s Money Policy Committee meets in just over a fortnight’s time, Its announcement is due on 3 August, alongside publication of the latest Quarterly Inflation Report.

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