Inflation stagnates to zero

Sarah Davidson

July 14, 2015

Samuel Tombs, senior UK economist at Capital Economics, said: “June’s UK consumer prices figures show that the continued weakness of inflation is boosting households’ spending power without having any adverse knock-on effects on wages or spending

“There are still no signs that deflationary pressures are spreading across the economy – although core inflation ticked down from 0.9% to 0.8%, this weakness continues to largely reflect cheaper imports. Inflation in the services sector was a much stronger 2.2%.”

Tombs said the UK looks set for another brief period of deflation as the fall in oil prices from $64pb to $56pb over the last month filters through to petrol prices and the 5% trade-weighted appreciation of sterling since the start of the year will bear down further on food and consumer goods prices.

He added: “While inflation should rebound towards the end of the year when the anniversary of the plunge in oil prices is reached, we think it will take a long time for CPI inflation to return to its target.

“The UK’s inflation outlook looks neither too weak to cause the MPC alarm, nor too strong to force it to raise interest rates at any more than a gradual pace from next year.”

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