The latest official price inflation figures from the Office of National Statistics show the Consumer Prices Index (CPI) fell back to 2.5% in August.
This is a fall from CPI of 2.6% in July.
Price inflation as measured by CPI has fallen in all but two of the past twelve months, falling from a peak of 5.2% last September.
The Retail Prices Index (RPI) measure of price inflation, which includes housing and mortgage costs, has also fallen in the year to August.
It now stands at 2.9%, falling from 3.2% the previous month.
CPI fell last month as a result of lower increases in the cost of furniture and gas prices. RPI fell due to smaller rises in the cost of clothing.
We will be paying particularly close attention to the inflation figures published next month, for the year to September. These are the figures used to establish increases to state benefits and also to determine any increase to the 2013/14 Individual Savings Account (ISA) allowance.
We share the Bank of England view that price inflation will continue to fall towards target for the remainder of the year.
Whilst various factors could place upward pressure on prices, the state of the UK economy should result in weaker demand for goods and services, keeping prices from rising too quickly.
This means that the medium term outlook is for price inflation at a lower level than we have experienced in recent years, which will provide a welcome respite to families who have struggled to maintain household budgets in an environment of rising prices.
What assumptions are you making about future price inflation in your Financial Plans? Speak to us to find out how to make realistic inflation assumptions, keep these under regular review and ensure that price inflation does not derail your investment or retirement plans.
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