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Inflation falls back as retailers cut prices

Figures released by the Office for National Statistics today revealed that inflation unexpectedly fell back in June. The consumer prices index (CPI) fell from 4.5% to 4.2% which is the first June decline in the index since 2003.

Analysts had expected inflation to remain at 4.5%. However, the rate is still more than double the 2% target set by the Government for the Bank of England. In spite of this, the Bank is expected to keep interest rates at a record low of 0.5% for the rest of the year, as concerns mount over the speed of the economic recovery.

The ONS said that discounting of video games and other consumer electronics helped drive the fall, suggesting retailers are responding to weak consumer demand. The core rate of CPI, which excludes rising fuel and food prices, eased to 2.8%, its lowest rate since November 2010.

The main 'downward effects' came from games, toys and hobbies. The decline was also helped by discounting of items such as digital cameras, DVDs and televisions as retailers respond to weak consumer demand.

The annual rate of core inflation, excluding volatile items such as food, energy and alcohol and tobacco, slowed to 2.8% from 3.3% in May. However, prices for food and non-alcoholic beverages increased 6.9% on an annual basis, the highest increase since May 2009. The most significant increases were seen in the cost of bread, cereals, meat, milk, cheese and eggs.

Source : The Retail Bulletin

12 July 2011
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