U.K. Inflation Rate Slows to 7.9 Percent
Why It Matters: Inflation is still stubbornly high.
Headline inflation rates have declined, but policymakers are closely watching other measures of price pressure that signal how deeply inflation has become embedded in the British economy. Price rises in the services sector, and a pickup in wage growth, are signals of persistent inflation and among the reasons the central bank has raised interest rates to the highest level since 2008.
In June, some of these price pressures eased: Inflation in the services sector slowed slightly to 7.2 percent, and core inflation declined for the first time since January.
Wednesday’s data was “a rare and welcome downside surprise,” Andrew Goodwin, an economist at Oxford Economics, said. But he cautioned that some of the reasons for the slowdown came from categories that can be volatile, including furniture prices.
“I don’t think this release is a game changer,” Mr. Goodwin added. “Fundamentally, wage growth and services inflation are too high.”
High prices have eaten away at household budgets for a year and a half. In January, the government pledged to halve the inflation rate by the end of this year, which would mean a fall to 5.2 percent.
Inflation is expected to slow meaningfully in the second half of this year, when the impact of last year’s surge in energy prices will no longer influence the annual calculations, and consumers start seeing the benefits of falling production costs for manufacturers.
But the pace of this slowdown has become another source of uncertainty. In recent months, inflation readings had been surprisingly high, and the Bank of England has stepped up its warnings that inflation is stickier than officials expected.
Source: The New York Times
