Inflation will turn negative again

Mortgage Introducer

August 18, 2015

The Office for National Statistics attributed the slight increase to a smaller fall in clothing prices compared with a year ago, although falling prices for food and non-alcoholic beverages offset the rise.

But Tombs doesn’t expect the increase to last.

He said: “Looking ahead, the scale of the recent fall back in oil prices suggests that CPI inflation is still likely to turn negative again over the next few months.

“And while inflation should pick up at the very start of 2016 as the anniversary of the previous plunge in oil prices is reached, it still looks likely to remain well below the MPC’s 2% target next year.”

Based on the inflation outlook, Tombs again ruled out the Bank of England raising the base rate this year.

He added: “The inflation outlook is still too weak for the MPC to justify raising interest rates this year – lift-off can be postponed until Q2 2016.”

Richard Campbell, ONS head of CPI, said: “This is the sixth month running that headline inflation has been at or very close to zero.

“While households will have seen individual prices rise and fall, the overall shopping basket bought by the country remains little changed in price compared with a year ago.

“The latest slight increase is mainly due to clothing, with smaller price reductions in this year’s summer sales compared with a year ago. Food and motor fuel prices continue to fall and have helped stop a larger rise in the rate of inflation.”

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