Inflation falls back to zero

This year, inflation has flatlined – and don't expect it to pick up anytime soon.

The annual rate of consumer price inflation (CPI) slipped back to zero in August from 0.1% in July. Core inflation, excluding volatile food and energy prices, declined from 1.2% to 1%. A fall in petrol prices and a reversal of the recent uptick in clothing prices were responsible for the moves. The unemployment rate edged back down to its post-crisis low of 5.5% in July.

What the commentators said

This period of "noflation" bodes well for growth, as it should stimulate consumption, said Scott Corfe of the Centre for Economic and Business Research. The cost of essentials is declining at the same time as wage growth is accelerating. The recovery in pay "has been the missing element" in the economic rebound, but it now seems to have arrived, said Chris Williamson of Markit. Pay excluding bonuses grew by 3.2% year-on-year in July, the biggest rise since November 2008.

This sort of increase "would normally worry policymakers into a pre-emptive hike in interest rates to avoid upward wage pressures feeding through into higher inflation", said Williamson. The Bank of England will remain "ultra-cautious" about raising interest rates, given recent signs of slower job creation, the absence of inflation and jitters in overseas markets. But now a hike by the end of 2015 is "a distinct possibility".

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