UK inflation rate falls to 1.6 per cent

Consumer Prices Index (CPI) annual inflation, the Government’s target measure, was 1.6 per cent in August, down from 1.8 per cent in July, according to the Office for National Statistics (ONS).

The largest downward pressure affecting the change in the CPI annual rate came from housing and household services. The largest effect came from gas, where prices were little changed between July and August this year but rose significantly a year ago. There was also a large downward effect from electricity, where prices were unchanged this year but rose significantly a year ago. Gas and electricity bills both rose in late July last year when major energy suppliers increased their gas and electricity tariffs. Partially offsetting these downward effects was a large upward contribution from liquid fuels where the price of kerosene rose this year but fell a year ago, reflecting movements in the price of crude oil.

There was also a large downward pressure from food and non-alcoholic beverages. This was mainly due to food where, overall, prices decreased this year at their fastest rate for a July to August period since 2000, but rose by 1.4 per cent a year ago. Within food, downward contributions came from a wide range of items with the main effects coming from fruit, bread and cereals, vegetables and meat.

By far the largest upward contribution to the change in the CPI annual rate came from transport. The largest effect came from fuels and lubricants where prices rose between July and August this year, but fell a year ago at the fastest ever rate for a July to August period. The average price of petrol rose by 1.1 pence per litre between July and August this year, to stand at 103.8 pence, compared with a fall of 5.5 pence last year. The average price of diesel rose by 0.6 pence per litre this year to stand at 104.4 pence, compared with a fall of 6.7 pence last year. Within transport, there was also a large upward contribution from the purchase of second hand cars, where prices rose this year at their fastest ever rate for a July to August period but fell a year ago. Partially offsetting these upward effects was a large downward contribution from air transport, where fares on European routes rose this year but by less than a year ago.

In the year to August, annual inflation for the Retail Prices Index (RPI) fell by 1.3 per cent, compared with a fall of 1.4 per cent in July. The main factors affecting the CPI also affected the RPI, however the different methods used to measure the price of new cars in the CPI and RPI resulted in a larger upward contribution to the RPI (compared to the CPI) from the purchase of vehicles. Additionally, there was upward pressure from housing due to house depreciation. Depreciation is excluded from the CPI.

RPIX inflation – the all items RPI excluding mortgage interest payments – was 1.4 per cent in August, up from 1.2 per cent in July.

As an internationally comparable measure of inflation, the CPI shows that the UK inflation rate in July, at 1.8 per cent, was above the provisional figure for the European Union as a whole of 0.2 per cent.