CPI inflation June falls to 1.8% - is this deflation?

Inflation CP basis fell to 1.8% in June compared to 2.2% in May, below the Government target and the remit of the Monetary policy committee. RPI fell to -1.6% and the RPIX rate of inflation fell to 1.0% from 1.6%.

CPI service sector inflation increased by 3.2% in the month compared to 3.5% in May. Once again the headline CPI rate was flattered to the downside by an increase in goods inflation of just 0.8% compared to 1.1% prior month.

Clothing and footwear price levels were down by over -8% but food (+5.4%), household utilities (+5.5%) and alcoholic beverages (+3.3%) boosted the index levels.

Only one other sector, transport was in negative territory (-1.3%) and education costs continue to accelerate up by 8.6%.

The inflation figures for June provide no evidence of deflation ahead, indeed the service sector inflation remains resiliently above target rates. The MPC is likely to retain a neutral stance with no change in the base rate until much later in the year.

As for Quantitative Easing, the MPC have adopted a wait and see stance at the present time with the allocated £125 billion almost exhausted. The immediate banking and liquidity crisis has been averted, deflation is not on the horizon, banks are still loathe to lend and the extent of any QE success has still to be measured.

ONS - Consumer Price Indices June 2009

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