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UK inflation rate falls back to zero in June

The UK’s Consumer Price Index (CPI) reversed back to zero last month, drifting back towards April’s 0.1 per cent decline – the first negative reading in more than 50 years.

The latest CPI reading is pleasing news for families with the cost of living staying flat at a time when wage levels are forecast to rise. Official figures are expected to reveal a 3.3 per cent increase of average wage levels across the UK next week.

The CPI is the speed at which prices of goods and services purchased by households rise or fall. If CPI rates remain flat year-on-year it means that the cost of goods and services bought in June 2014 would cost the same in June 2015.

According to the Office of National Statistics (ONS) a fall in food prices, the impact of summer sales and smaller year-on-year rises in air fares worked to erase the slender inflationary gain made in May.

Nevertheless, the decline in inflation was anticipated by leading economists and remains very much in line with forecasts supplied by the Bank of England in its latest inflation report.

Philip Gooding, from the Office of National Statistics, said: “Inflation has continued its pattern of recent months, when prices have been very little changed on the previous year.

“The headline rate for June has dropped very slightly on May, back to zero, thanks to small downwards effects from movements in clothing and food prices and air fares.”

Mark Carney, Governor, Bank of England, anticipates prices of goods and services to increase towards the back end of the year, with inflation forecast to return to around 2 per cent by early 2017.

There are indications that the fall in oil prices is having a knock-on effect on the cost of other goods and services. The ‘core inflation’ reading – which doesn’t include more volatile items such as energy, food and alcohol – fell to 0.8 per cent in June; its joint-lowest level since March 2001.

Howard Archer, chief UK economist, Global Insight, said: “With earnings growth currently seeing clear improvement and employment high and rising, purchasing power is currently in rude health.”

Mr Archer believes it’s likely that inflation will remain around the zero mark for the remainder of the summer before heading “gradually but decisively up from September”.

Image: Bank of England

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