Inflation Lowest in Nearly Five Years

Consumer price inflation dropped from 1.8% to 1.6% in August, slightly above expectations, though the lowest since January 2005. It should fall again next month, to just above 1%. Lower food and energy prices were responsible for the fall, with “core” inflation staying at 1.8%.

RPI inflation is no longer benefiting from falling house prices. Its negative rate was 1.3%, up from minus 1.4% in July. RPIX inflation, the old target excluding mortgage interest payments, rose from 1.2% to 1.4%. More here.

Meanwhile, in his opening statement to the Commons Treasury Committee, Mervyn King said growth had resumed but that the path of recovery was uncertain and the risks to inflation remained on the downside.

This is part of what he said: “Following a precipitate fall in economic activity at the end of last year and the start of this, there are now signs that growth has resumed in the third quarter. Inflation over the next year is likely to be volatile. But looking further ahead, the strength and sustainability of the recovery is highly uncertain and the balance of risks to inflation around the 2% target remains on the downside.”

Originally published at David Smith’s EconomicsUK and reproduced here with the author’s permission.