The rate of annual consumer price inflation was unchanged in August on the previous month, undershooting City analysts’ expectations of a pick up in the wake of the Brexit vote and the plunge in the value of the pound.
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The Consumer Price Index (CPI) measure of inflation is forecast to reach 0.7%, building on rises in June and July when the cost of living hit 0.5% and 0.6% respectively.
CPI stood at a near two-year high of 6.07 per cent in July while it was at a low3.74 per cent in August 2015.
Economists had expected a slightly higher reading of 0.7% after the fall in the pound pushed up import prices.
Ben Brettell, Senior Economist, Hargreaves Lansdown, commented: “Economists had been expecting inflation to rise for the third consecutive month in August, as retailers passed rising import costs on to consumers”. Manufacturers reported that materials and fuels from overseas rose last month at an annualised rate of 7.6 per cent, up from 4.1 per cent in July, representing the biggest rise since 2011.
“While a fall in inflation was expected, the extent has been more than anticipated as vegetable prices have shown a sharp correction”, Mr. Shah said.
The favourable base effect and reversion of the seasonal upside pressure on food prices is likely to keep the average inflation in the second half of the financial year benign at around 4.4%, the brokerage said in a report. The Bank of England, which cut its key interest rate and expanded a bond-buying program last month, will leave its stimulus measures unchanged on September 15, analysts forecast.
The outlook for economic growth has brightened in recent weeks, with manufacturing and services PMI survey’s for August showing a bounce back in activity after July’s slump.
Enthused by easing retail inflation, Economic Affairs Secretary Shaktikanta Das exuded confidence that RBI will take into account improvement in the price situation while deciding on a rate cut in its next policy review due on October 4.
Capital Economics UK economist Scott Bowman said: “Consumer price index inflation inflation should resume its upward journey in coming months”.
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“Meanwhile, a likely softening labour market and limited consumer confidence will dilute workers’ ability and willingness to push for higher pay awards”. “The (BOE’s) Monetary Policy Committee have indicated a preference for first stabilising demand and a willingness to overshoot the 2 percent (inflation) target”.
