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Inflation rate drops amid clothes and shoe discounting

The UK inflation rate deteriorated to 2% in the year to July as the economy continued to reopen from Covid-19 restrictions.

Inflation Falls
Inflation Falls

The Consumer Prices Index (CPI) measure of inflation dropped from 2.5% in the year to June, the maximum level for nearly three years, the Office for National Statistics (ONS) said.

The rate dropped to the Bank of England’s 2% inflation target after being greater for two months in a row.

The dip in inflation was the resultant of price falls in clothing and footwear. Prices of games, toys and hobbies were also down and package holidays fell marginally compared with a year ago.

Nevertheless, those decreases were “largely offset” by price rises in transport, the ONS said.

Average petrol prices in July 2021 were 132.6p per litre, compared with 111.4p per litre a year earlier. The latest price is the maximum recorded since September 2013.

Liz Martins, the UK economist at HSBC, shared at BBC Radio News 4’s Today programme that experts were guessing the annual inflation to decrease a little, but added the size of the fall was “a bit of a surprise”. Today’s figure puts the brakes on those who argue that inflation is about to go out of control, but there are reasons to think it does go up further later in the year,” she mentioned.

Ms Martins mentioned the reasons for the dip in inflation were “quite broad based”, but added the principal backers were “good sales” in the clothing shops over the summer and also a year-on-year fall in the prices of computer games and food.

But, she said there were still prospects that inflation would rise later this year. The provisional VAT cut will be removed for hospitality, and some inflationary big energy bill hikes are coming.

“So we do think inflation could go up towards the end of the year and then come back down again around the turn of the year and into next year.”

 

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