Inflation rate falls to 2.7% in August

18 - 09 - 2013

The cost of living dipped in August with inflation, measured by the consumer price index (CPI) falling to 2.7% from 2.8% in July.

Wages increased by 1.0% on average over the same period, meaning that the cost of living is still rising faster than income.

The Office for National Statistics has attributed the drop in inflation to the prices for fuel, air fares and clothing rising more slowly than last year.

The Bank of England uses CPI as a measure to set interest rates. It targets CPI inflation of 2% but is not yet raising interest rates to control inflation as levels of unemployment are too high.

Samuel Tombs, an economist at Capital Economics, said: ‘We continue to think that CPI inflation is likely to fall back to the 2% target within the next few months – a development that would help to ease the squeeze on households' real earnings and cool fears in the markets that one of the inflation knockouts to the MPC's forward guidance is likely to be breached.’

However, Howard Archer at Global Insight predicted that consumer price inflation is ‘likely to hover close to 3.0% in the near term’. He added that ‘there remains a risk that it could yet reach 3.0% if oil prices spike up anew’.






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