Inflation Slows in August

Inflation surprise as computer game prices drop

Inflation surprise as computer game prices drop

Inflation growth slowed sharply in August to 1.7% after computer game prices dropped and clothing prices were slow to recover from the summer sales.

It said: "Price movements for games can often be relatively large, depending on the composition of bestseller charts".

"However, Brexit uncertainty looks like it's here to stay for the foreseeable future and further weakness in inflation metrics in the coming months could see calls for Mark Carny and his fellow rate setters to lower the base rate gain prominence - especially given the anaemic growth figures that have seen the United Kingdom flirting with a technical recession".

Among manufacturers, the cost of raw materials - many of them imported - was 0.8% lower than in August 2018, compared with a 0.9% increase in July, pushed down by lower oil prices. Core inflation, which removes volatile elements such as housing and energy, dropped to 1.5% from 1.9%, also below consensus expectations 1.8%.

'This was mainly driven by a decrease in computer game prices, plus clothing prices rising by less than previous year after the end of the summer sales'.

This has meant the UK's inflation rate growth has been severely curtailed, which is a good thing.

"However, with the latest Brexit deadline looming next month and with the threat of a sustained increase in the cost of oil following the disruption of oil supplies in the Middle East, future trends in inflation remain particularly hard to predict".

The ONS said that prices usually grew around this time of year as autumn ranges started to enter shops. But it said the smaller increase this year "may have been influenced by the proportion of items on sale".

But underlying inflation pressures are modest for now. Global oil prices also declined slightly in August, owing to higher production and softer worldwide demand.

The global slowdown, in other words, has removed much of the upward pressure on prices.

Meanwhile, the National Institute of Economic and Social Research (NIESR) said companies may be delaying raising prices until there is clarity over Brexit.

"Improved consumer purchasing power is particularly welcome news for an economy now struggling markedly amid major Brexit, domestic political and global economic uncertainties", said economist Howard Archer from the EY ITEM Club consultancy.

August's rate came in 0.1 percentage point below July's level as Canadians paid less for fresh vegetables and fruit.

Ben Brettell, senior economist at Hargreaves Lansdown, agrees there is unlikely to be any change.

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