Inflation drops but savers warned the squeeze will continue

20 July, 2017, 00:59 | Author: Roderick Gutierrez
  • Croatia's annual inflation slows in June

"Today's inflation numbers show CPI inflation rising from 0.5 per cent in June 2016 to 2.6 per cent a year later - that's more than a five-fold increase in only a year", she said.

Economists in a Reuters poll had expected consumer prices to rise 0.2 percent while the central bank had expected them to increase 0.3 percent on a quarterly basis between April and June.

"Today's fall in inflation is mainly due to drops in petrol and diesel prices". Inflation has been higher than average nominal wage growth in recent months, meaning fall in real pay. First, for the economy which relies on consumer spending for three-quarters of its growth; and second, for consumers who will continue to face higher living costs. The fall was driven by the lower cost of petrol, after a significant fall in the oil price from mid-May to mid-June.

The principle question for rate setters now - and indeed those with a mortgage or savings - is whether the fall in June signals inflation has peaked and will dip further without a rate rise being needed, or if this is simply a one-off and prices will be back on the rise soon?

Hargreaves Lansdown senior economist Ben Brettell says the lower inflation figure will ease the impact on consumers, which the United Kingdom economy is heavily reliant on.

In "seasonally-adjusted" terms inflation came in at "negative 0.1 per cent" Statistics NZ said.


Previous rises have been fuelled by the weak pound putting pressure on households with those with the lowest incomes hardest hit.

Most economists had expected the headline rate of CPI to remain roughly the same or at least only shrink to 2.8%, although the number was in line with the Bank of England's latest forecast.

Sterling lost half a cent against the US dollar and British government bond prices jumped as the figures suggested the BoE was under little pressure to raise rates when it next meets in early August, despite concerns among some of its policymakers about rising prices.

The main downward driver was fuel where prices fell for the fourth month in a row, and by 1.1 per cent between May and June.

Observers will also be watching the contribution of new members of the Bank of England's monetary committee over the coming months following the departure of two existing members to see if the change in composition of the committee changes its approach at all.

United Kingdom inflation registered a shock fall last month, sliding to 2.6%, well below the 2.9% recorded in the month before and economist expectations of no change. "Short-term rates will not move much this year and probably not much next year as well, and that's the part the Reserve Bank is largely anchoring", he said.

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