Inflation drops back to 0%
Clothing and food price falls behind drop.
The Consumer Prices Index (CPI) annual measure of inflation dropped to 0% in June, down from 0.1% in the 12 months to May.
According to the Office for National Statistics (ONS), the main drivers of the fall were drops in clothing and food prices. While air fares went up, they were smaller rises than those seen a year ago.
The ONS pointed out that, historically, price movements for food and motor fuels have been some of the biggest causes of inflation. However, they have had the largest downward pull on inflation in each month so far in 2015 – in the year to June, food prices have fallen 2.2%, while motor fules have dropped a whopping 10.5%.
At the other end, there were no large price rises to offset those falls, returning the economy to so-called ‘noflation’, which we last saw back in March.
The Bank of England believes inflation will rise slowly towards its Government-imposed target of 2% over the next two years.
What it means for you
Inflation has remained very low, even dropping briefly into the negative, over the last few months. This means that the general cost of living is virtually unchanged from a year ago. So even if you haven’t had a payrise, you are at least no worse off.
For savers, it also means that getting an inflation-beating return is very easy – every account going pays more than 0%! However, rates are still less than inspiring. If you want to get the best possible return, read Where to earn most interest on your cash.
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Comments
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I still don't believe these figures. Having said that, there is still a glut of food on the markets owing to the Russian counter sanctions. I have noticed British strawberries and cherries still around, when in years gone by, they would be off the shelves and the barrows by now. Get on your knees and pray that the Russians renew the counter sanctions.
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It amazes me how often air fares appear in these reports despite the fact that they must contribute little to the overall figure. As to CPI v RPI neither is a satisfactory index of inflation. CPI has a more statistically valid composition and methodology than RPI, but CPI doesn't cover housing costs which many think should be covered - they certainly consume a lot of most families post tax income! CPI is though internationally comparable, not that that is much benefit to us in the UK who have to live with its deficiencies. At least UK state pension are subject to the triple lock guarantee so when inflation under CPI is zero the pension increase is 2.5%. In that respect UK state pensioners are doing better than those in the public sector limited to 1% pay increases. Be grateful for small mercies.
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No mention here of the real inflation rate the RPI which went up by 1%, the CPI is the rate the government base the derisory pension rises on, RPI the rate we are charged for increases in taxation.
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21 July 2015