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Petrol prices behind surprise fall in inflation

3 min read

Lower petrol prices contributed to a surprise fall in inflation between May and June, new figures released today revealed.

The CPI index fell to 2.6% from 2.9%, although the rate continues to outstrip pay growth.

The 0.3% drop in the Consumer Prices Index (CPI) 12-month rate is largely attributed to falling prices for motor fuels and recreational and cultural goods and services.

The largest rises came from furniture and household goods, for which prices rose by 0.5% compared with a 0.3% fall a year ago.

CPIH, which includes the costs of and maintenance of housing was also at 2.6%, down from 2.7% in the previous month, the first fall since April 2016.

The drop comes as pressure built on the Bank of England to consider a rise in interest rates following successive months of rising inflation.

ONS Deputy National Statistician Jonathan Athow said: “Today’s fall in inflation is mainly due to drops in petrol and diesel prices. However, the rate remains higher than in the recent past.

“Petroleum products were mainly behind the drop in the annual growth rate of factory gate prices. Likewise, crude oil was mainly responsible for the recent slowing of input price inflation, with both its dollar price down and some recovery in sterling.

“Meanwhile house prices continue to go up, but the rate of increase has slowed since mid-2016. London saw the second-slowest annual growth of any part of the UK.”


The drop in inflation follows last week's labour market figures, which showed wages are still failing to keep up with inflation - at a rise of 2%.

TUC General Secretary Frances O’Grady said: “The government must stop this cost of living squeeze. Many working people are caught in a vice as rising prices crush their pay.

“Ministers claim they are listening to struggling families. But now is the time to prove it. Britain needs a pay rise across the public and private sector.”

The Resolution Foundation thinktank said while the slight drop was welcome, the general rise in prices in the preceding months have heaped pressure on to struggling households.

“The small fall in inflation is good news for struggling households, though with average pay growth barely hitting two per cent pay packets will continue to shrink for the rest of the year at least,” policy analyst Stephen Clarke said.

“Households experience very different inflation pressures and so far this year rising prices have borne down most heavily on the poorest. For many of these families this higher inflation means an even tighter pay squeeze and an even bigger fall in the value of benefit such as tax credits.

“While there is little that government can do to bring inflation down, it can change how rising prices affect 12 million families whose incomes are being squeezed by the ongoing cash freeze to working age benefits.”

A spokesperson from the Treasury said: "While it is encouraging that inflation was lower this month, we appreciate that some families are concerned about the cost of living.

"That’s why we have introduced the National Living Wage, which is helping to boost earnings by £1,400 a year, and why we’ve cut taxes for millions of people to help them keep more of what they earn.

"We are also increasing our free childcare offer to help 400,000 working parents."

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