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Inflation dips below 2% target

UK Consumer Price Inflation fell below the Bank of England’s 2 per cent target for the first time in nearly two years last month.

The Office of National Statistics has revealed that the CPI dropped to 1.8 per cent in June 2009, and marks the first occasion since September 2007 that the inflation rate has dropped below the BoE’s central target rate of 2 per cent.

The Retail Price Index, which includes mortgages, rose by 0.3 per cent in June, but is still at -1.6 per cent. The ONS says this is the steepest annual fall in RPI since the 1948.

Dresdner Kleinwort Research Analysts Peter Dixon says it is notable that since peaking at a rate of 5.2 per cent in September 2008, the inflation rate has dropped by only 3.4 percentage points compared with a decline from the peak of 6.9 and 4.0 percentage points in the US and euro zone respectively.

Dixon says: “The most likely explanation for the apparent stickiness of UK inflation is the lagged impact of last year’s sterling depreciation, which is now feeding through to impact domestic prices.

“Indeed, we look for CPI inflation to slow further, reaching a trough below 1 per cent by September though this effect will likely prove temporary as the base-year effect derived from collapsing commodity prices will bottom out in the autumn.”

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Jeremy Pearson is Technical Support Manager with Canada Life’s ican Technical Services Team. Canada Life offers a range of wealth management solutions, including retirement income planning, estate planning and investment solutions from a choice of jurisdictions, including the UK, Isle of Man and Republic of Ireland. Many parents value the standard of education offered by […]

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