What's happening with prices?

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CPI data released this morning shows that consumer prices rose by 1.9% in the twelve months to June, up from 1.5% in May.

The biggest contribution to this was clothing and footwear prices, which normally fall between May and June as the summer sales begin, but this year average prices actually rose, particularly when it came to women's outerwear.

Other upwards contributions came from:

  • Food & non-alcoholic beverages, as a result of base effects: on average prices rose between May and June this year but fell between the same two months a year ago.
  • Transport prices also rose, by 0.6% between May and June 2014, compared with a rise of 0.1% between the same two months a year earlier. The largest upward contribution came from air transport, though this was partially offset by a small downward contribution from motor fuels prices which rose by less this year than they did last year.
  • Furniture, household equipment & maintenance: prices, overall, rose by 0.2% between May and June this year but fell by 0.5% a year ago. The main upward effect came from furniture & furnishings where prices rose by more than a year ago.

There were no large downward contributions to the change in the CPI 12-month rate between May and June 2014.

Although CPI inflation increased, it is the sixth consecutive month in which the CPI rate has been below the Bank of England's target rate of 2.0%. A range of factors should continue to keep inflation subdued, including the stronger pound; limited inflationary pressure from commodities; and spare capacity, which is likely to continue to bear down on margins and wages.

Today's Producer Prices Index highlights the limited impact from commodities, with manufacturers' input prices falling by 0.8% between May and June, input prices are now down 4.4% over the year.

The largest contributions to the fall were:

  • Home-produced food prices which fell by 11.9% in the year to June. This is the biggest annual fall since June 2009. The decrease was a result of a reduction in the price of home-produced root crops, such as potatoes.
  • Imported chemical prices fell 4.5% in the year to June. The decrease was caused by the fall in imported other organic basic chemicals.

As a result output price rises have remained low, prices increased by 0.2% over the year and the annual rate of output price inflation has remained below 1% for all of 2014 to date.

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All data is from ONS.

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