The latest price inflation figures show that the pace of inflation slowed unexpectedly in June, with the Consumer Prices Index (CPI) falling to 4.2%.
Economists and the markets had expected to see CPI remain at the previous level of 4.5%.
There was also a fall in the pace of inflation as measured by the Retail Prices Index (RPI), from 5.2% to 5%.
Both types of inflation remain well above the government target, with the CPI measure still at more than double the government target of 2%.
This slowdown in the pace of inflation for the year to June was partially attributed to more aggressive discounting in some areas of discretionary spending. For example, clothing prices fell by 1.9% compared to the previous month, with retailers struggling to maintain their revenues as households face a continued squeeze on their budgets.
Despite this slight easing in the rate of inflation, CPI has exceeded the target for 35 of the past 41 months.
It is however worth noting that core inflation, which excludes the more volatile food and fuel prices, has now fallen from 3.3% to 2.8%. This is the lowest level for core inflation since November last year.
Whilst this latest inflation data is unlikely to influence an interest rate change, it could prompt an increase to the programme of quantitative easing. This decision will depend on the progress of the economic recovery over the rest of this year, with current indications pointing towards a bumpy ride to recovery.
Photo credit: Flickr/AndyRob
