The Office for National Statistics (ONS) has stated that consumer inflation came down to 2.5% in August, bringing the 2% target ever closer. It is said that such developments should pave the way for the Bank of England to invest more money to enable further economic easing.
This inflation decrease has confused many analysts as fuel prices remain high and are rising. However, it is the retailers who are said to have triggered this decrease in inflation, by cutting prices last month in an attempt to draw in low cash customers.
Samuel Tombs at Capital Economics said: “July’s core inflation rate had been boosted by the earlier-than-usual end to high street sales and a sharp Olympics-related rise in air fares inflation, so a drop back in August had always looked likely.”
The Bank of England predicts that inflation will continue to fall and it should fall below the 2% target early next year. However, a worry for this aim is the ever rising oil and commodity prices. It is expected that the Bank will soon increase its £375bn quantitative easing programme after the current £50bn round is completed.
Yes, the inflation drop is a good sign of things to come. But Jeremy Cook, chief economist at foreign exchange company World First argues that “disparity between prices and wages will remain the key spread that needs closing through the second half of the year – so as to revive consumer demand.”.