August Price Inflation: One Down and Two Ups

Today’s release of the August price inflation indices by Office for National Statistics, report:

• Consumer Prices Index (CPI) annual inflation declined to 1.6%, down from 1.8 per cent in July.
• Retail Price Index (RPI) annual inflation rose to -1.3%, from -1.4% in July.
• RPIx inflation, which is the all items RPI excluding mortgage interest payments, increased to 1.4%, up from 1.2% in July.

Factors contributing the changes in the annual rate of CPI inflation, included:

• Large downward pressure from gas and electricty where prices had risen significantly in July and August 2008 but were little changed this year.
• Partially offsetting these downward effects was a large upward contribution from liquid fuels where the price of kerosene rose this year but fell a year ago, reflecting movements in the price of crude oil.
• There was a large downward pressure from food and non-alcoholic beverages. This was mainly due to food where, overall, prices decreased this year at their fastest rate for a July to August period since 2000, but rose by 1.4 per cent a year ago.
• The largest upward contribution to the change in the CPI annual rate came from transport, in particular from fuels and lubricants. The average price of petrol rose by 1.1 pence per litre between July and August this year, to stand at 103.8 pence, compared with a fall of 5.5 pence last year. The average price of diesel rose by 0.6 pence per litre this year to stand at 104.4 pence, compared with a fall of 6.7 pence last year.
• There was a large downward contribution from air transport. However, not because fares fell. It was simply because fares on European routes rose this year but by less than a year ago.

Depending on which index you prefer, and which constituent parts actually apply to you, your money is still likely to purchase less than it did a year ago. The only question is where the rate at which your money is becoming worthless is accelerating or decelerating.

ONS: News Release [PDF] – Statistical Bulletin [PDF] - Briefing Note [PDF].

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