Inflation drops to 0.0% in August

The Consumer Prices Index was unchanged in the year to August 2015, that is, a 12-month rate of 0.0%, down from 0.1% in the year to July 2015.

A smaller rise in clothing prices on the month compared with a year ago was the main contributor to the slight fall in the rate. There were also downward effects from changes in motor fuel prices and sea fares.

Rising prices for soft drinks and for furniture and furnishings partially offset the fall.

CPIH (not a National Statistic) grew by 0.3% in the year to August 2015, down from 0.4% in July 2015.

Maike Currie, associate investment director, Fidelity Personal Investing, commented:

“UK inflation has dipped back to zero in August – down from 0.1% in July. This is largely due to the slump in the oil price, a washed out summer keeping shoppers away from the high street, falling sea fares and the ongoing supermarket price wars. Inflation has now been flat or negative for five out of the past seven months  – a far cry from the Bank of England’s 2% inflation target.

"With inflation virtually non-existent, the Bank of England is under even less pressure than the Fed to raise rates and sure enough last week’s meeting of the Monetary Policy Committee voted 8-1 against a hike on this side of the pond – pushing UK rate rise expectations as far out as August 2016."

Andrew Sentance, senior economic adviser, PwC, added:

"UK inflation has been hovering around zero since very early this year and this is not unique to our economy. It is around the same level in the US and the Eurozone. But this does not mean our economy is about to lapse into deflation. Falling energy and food prices are pulling inflation down and this effect will wear off in the months ahead, with CPI inflation likely to rise back to 1-2% in the UK by the first half of next year. It could go higher still if wage increases continue to pick up in response to a tightening labour market.

"Meanwhile, the current period of stable prices is providing a boost to consumer spending power, and supporting the growth of the economy. This growth of domestic demand in the UK and western economies provides a counterweight to the slowdown we are seeing in China and some other emerging market economies."