Inflation at lowest since Nov '09

The rate of consumer price index inflation has fallen to 2.4%, its lowest level since November 2009. The headline rate of retail price index inflation fell to 2.8% in June, from 3.1% in May.

How the rain helped the inflation

by - Economics Editor

The latest inflation figures were quite a surprise and it was the third month in a row when this has happened. It means of course that the rate of price rises is slowing dramatically.

There are two main reasons; the first is that oil prices in June were falling as they had done all year up until that point - so that means petrol prices were down.

The second reason is the rain. The dreadful weather has been putting people off going in to shops so the stores have had to cut prices and put on sales and that has been particularly visible in clothes and shoes.

Pay and inflation
Pay and inflation

Now I think we may be at a turning point, this shows inflation stretching back over the last eight years. You can see how it halved in the autumn right at the end.

Pay settlements (the grey line) kept pace with until the beginning of 2010, before inflation raced away.

That gap is now closing, we're not there yet but it means the squeeze on households is beginning to ease and next year we may see pay exceed inflation and we'll feel better off.

Petrol, food and clothing driving down the cost of living

Economist Alan Clarke says the cost of living is falling because of cheaper petrol, food and clothing.

  • Although petrol prices are down the recent rise in oil prices means the effect is unlikely to last
  • Food inflation dropped because the big increase a year ago was not repeated
  • Clothing was very low, partly because of the wet weather. Because it keeps raining, clothing prices should stay low as stores try to shift summer stock

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Falling cost of living 'won't cure crisis in living standards'

While the sharp fall in inflation will bring welcome relief for many workers, millions are still facing real wage cuts as the longest squeeze in living standards for decades continues. Falling inflation alone won’t tackle our living standards crisis. We also need to see stronger wage growth, and for the government to reverse damaging cuts to tax credits.

– Brendan Barber, TUC General Secretary