10/08/2004

Inflation dips to 1.4%

Inflation has dipped by 0.2% to 1.4% on the back of seasonal price reductions and summer sales in furniture last month, the Office of National Statistics (ONS) has said.

The Consumer Price Index (CPI) now stands at 0.6% below the Bank of England's 2% target.

However, Retail Prices Index inflation remained unchanged at 3% in July, and the all items rate excluding mortgage interest payments (RPIX) was 2.2% in July, down from 2.3% in June.

The ONS study found that goods prices were pegged back by food, with prices overall falling this July compared with little change a year ago. In particular, there were sharp seasonal reductions this year for some fruits and last year's increase in milk prices was not repeated.

For services, the main downward effects came from communication, where new tariffs by major suppliers lowered the cost of both landline and mobile telephone services. Last year's increase in bank overdraft charges dropped out of the annual comparison, and the cost of health services rose by less than last year, the ONS said.

However, on the entertainment and leisure front, there were increases this year in the cost of cable television subscriptions and also package holidays in Europe, compared with reductions a year ago.

There was also a "significant increase" in some housing costs mainly reflecting higher mortgage interest bills, as lenders passed on June's quarter point base rate rise to borrowers. An upward effect also came from stronger growth this year in house prices used to calculate depreciation - the amount homeowners need to spend to maintain their property.

(gmcg)

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