For once, inflation was lower than expected. The annual rate of consumer price inflation (CPI) slid to 4.2% in June from May’s 4.5%. According to the latest house price survey by the Royal Institution of Chartered Surveyors, house prices slid for a 12th successive month in June. Employment increased by 50,000 in the three months to May, a smaller increase than those seen earlier this year.
What the commentators said
The fall in inflation, a reflection of cheaper discretionary items in shops offsetting higher food prices, looks unlikely to last. Food prices and utility bills are set to rise further. Expect CPI to hit 5.5% in the next three to six months, said James Knightley of ING Financial Markets. Moreover, the latest figures reflected “promotions… being brought forward” in shops, said Damian Reece in The Daily Telegraph. These discounts “are not sustainable”. However, retailers will continue to struggle to get consumers to spend. With inflation staying high and annual pay growth at just 2.3%, real wages are being squeezed. So it’s no wonder consumption is so lack-lustre. But exports have also slowed as “international demand has clearly weakened”, said Nila Ali of the Ernst & Young Item Club. With growth poor and inflation high, said Reece, the economy is “slowly cooking up the prospect of that classic Seventies dish, stagflation”.