UK August 2012 Inflation down at 2.5%

The UK inflation for August came out at 2.5%, down from 2.6% in July, ONS reports. The downward pressure was mostly on account of changes in the CPI rate in the furniture, household equipment and similar sectors.

The retail price index stood at 2.9% in August, down from July’s 3.2%.

The Consumer Price Index measures inflation which is a key point hinting at the UK’s overall economic health. July’s inflation spike was largely attributed to increase in air fare costs, clothing and footwear.

The retail price index measures the housing costs including rental and mortgages and is used for index linked gilts. The UK’s inflation has been on the downside for most of 2012 with analysts expecting the inflation rate to be steady without any further declines. Bank of England was expecting the inflation to ease back close to the 2% inflation target set for this year. Besides the upward trend in March and July, the UK’s inflation has been largely lower since the 5.2% spike in September last year. The UK Central Bank is hoping that inflation levels would ease below its target by early next year but higher fuel prices and commodity prices could well put a dent into the plans.

The UK Central bank will be releasings the MPC minutes tomorrow which will shed further light on economic stumulus. It is expected that there will be no policy changes until November. The BoE has been persistent in its efforts to ease the UK economy with the already in place £375 billion quantitative easing. Sir Mervyn King is hopeful that inflation will pick up towards the end of the year with growing concerns of slowdown from Europe and the US.

The British Pound was weak against the USD yesterday but managed to stay within the four month high, ahead of the UK inflation report. The GBP has been strong with better than expected UK data in the past weeks which is further lowering the possibility for the BoE’s QE expansion.

To access the original report from ONS for August 2012 Inflation, click here.

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