Croatia's annual inflation slows in June

Jerome Frank
July 20, 2017

This is the first fall in the rate since April 2016 and was largely down to lower petrol and diesel prices.

The Office for National Statistics said in its latest release that the UK's Consumer Prices Index (CPI) inflation rate - the key measure of inflation - was 2.6% in June, down from 2.9% in May. "However, the rate remains higher than in the recent past".

Even if inflation does recover, ING Bank economist James Smith expects the weaker pound to ultimately keep headline inflation in the 2.5-3% region for the rest of this year.

"That's what's pushing inflation up, and inflation will be above target for a period of time and today's figures are consistent with that", he told Sky News.

Cumbria Chamber of Commerce has responded to the surprise fall in inflation by calling on the Bank of England to ditch any plans for an early rise in interest rates.

Lower inflation offers households some respite after several months in which prices have outpaced wages.

"Inflation also has implications for our savings and investments as it erodes the spending power of future interest and dividend payments and eats away at the worth of your original capital", she continued.

The housing boom lifted new house prices.

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"There's lots of pressure still in the tank", Alan Clarke, an economist at Scotiabank, said.

It is also worth bearing in mind the BoE's more hawkish tone of late, with chief economist Andrew Haldane and governor, Mark Carney, having both hinted they are coming around to the view that United Kingdom rates may need to rise soon, albeit when inflation was still at 2.9%.

"We expect the United Kingdom to suffer a moderate slowdown, not a recession, but businesses should be monitoring this and making contingency plans", PwC chief economist, John Hawksworth, said.

The BoE has so far chosen not to respond by raising rates, saying the Brexit hit to the pound is likely to be temporary.

The nation's anti-graft ombudsman told parliament on 19 June to start the process of changing the constitution to force the Reserve Bank to focus on the "socioeconomic well-being of the citizens" rather than on inflation.

Of the three would-be raisers, one has left the committee and the five who voted to hold will feel vindicated now in their wait and see approach.

"There is now a very real chance that United Kingdom inflation will dodge reaching 3% in the second half of the year, although there could be a limited renewed pick-up over the coming months as sterling's past sharp drop may not have fully fed through". After securing a majority, the cabinet of David Cameron followed through on a campaign promise and put forth the decision to remain or exit at the hands to the people. A drop in the cost of computer games and equipment, which rose in May, was also a factor.

The other index worth noting is the FTSE 250, which has risen on the back of this price data.

Other reports by Guamnewswatch

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