CHEAPER clothes led to a surprise drop in inflation, figures for August showed yesterday.
Inflation measured on the Bank of England’s new benchmark, the consumer prices index, dropped to an annual rate of 1.3 per cent last month, down from July’s 1.4 per cent to the lowest since April.
Prices for consumer goods and services are now lower than at the start of the holiday season in May. Goods prices in August were down 0.7 per cent from a year earlier.
The Office for National Statistics found that clothing prices in August were 6.2 per cent cheaper than in the corresponding month last year. Retailers only managed to increase prices by 1.5 per cent on the previous month. Analysts said that poor weather in August meant that retailers had tried harder to encourage consumers to spend and softened their post-sale price rises.
Inflation also fell in areas such as toys, computer games and vegetables. But the cost of personal computers, theatre tickets and foreign holidays rose. Prices of furniture and household goods also rose compared with a year ago.
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The news was tempered by Monday’s producer price figures, which showed that prices of goods leaving factories are rising at their fastest rate for eight years, prompting concern that inflationary pressures might build in coming months.
While the CPI fell, the retail price index (RPI) measure of the cost of living rose from 3 per cent to 3.2 per cent in August, its highest rate since February 2003.
The gap between the two measures, which is now wider than at any time since early 2001, was driven by the impact of increased mortgage interest payments after rises in interest rates. Inflation on the Bank’s former target measure, the RPI excluding mortgage interest payments, was 2.2 per cent, unchanged on the previous month.
Richard Iley, of BNP Paribas, said the figures showed that, despite higher oil prices, the short-term inflationary outlook was still benign: “With high street demand slackening, retail margins may absorb a fair proportion of the inflationary pressure bubbling up in the price pipeline.”
The further drop in inflation below the Bank of England’s 2 per cent target led some economists to speculate that interest rates may be near their peak.