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Inflation falls to 4.2 per cent 12 July 2011

The Office for National Statistics (ONS) revealed this morning the unexpected fall in the consumer prices index (CPI), with economists previously believing it would fall by at least 4.5 per cent.

The retail prices index (RPI) measure of inflation - which includes mortgage interest payments - also fell, from 5.2 per cent to five per cent. Both measures are still overshooting the Bank of England’s mandate to maintain inflation at two per cent. The bank recently voted again to keep interest rates at 0.5 per cent.

The ONS said the most significant downward contributions to the one-month change in the CPI between May and June 2011 came from games, toys and hobbies (particularly computer games), along with clothing, photographic tools and data processing equipment.

TUC general secretary Brendan Barber said: “The small drop in overall inflation will be of little comfort to families facing soaring food and transport bills. The cost of living is still rising twice as fast as wages, so our income squeeze is getting tighter every month and will continue for some time.”

Barber added: “With a weak labour market, growth at a standstill, and both business and consumer confidence down, inflation is the only measure that's bounced back since the recession, creating a toxic mix for families' living standards.”

By far the biggest upward contribution to the one-month change came from food and non-alcoholic beverages, for which prices increased by 0.9 per cent between May and June.

The ONS said the upward effects within this category were widespread with the most significant coming from bread and cereals, meat and milk, cheese and eggs.

These were partially offset by a small downward effect from mineral waters, soft drinks and juices.



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