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Friday, September 20, 2002


The deflation problem isn't absent from forseeable UK scenarios either. According to the latest figures from the Office for National Statistics RPIX - retail price inflation excluding mortgage payments - dipped from 2 per cent in July to 1.9 per cent in August. The broader RPI measure fell back similarly from 1.5 per cent to 1.4 per cent, in line with expectations. However, within this picture it is noticeable that the slow level of worldwide growth continued to depress goods prices, while the more robust domestic economy was reflected in accelerating services prices. The annual fall in goods prices increased from 0.9 per cent in July to 1.1 per cent in August but inflation in services, including package holidays, restaurants, insurance and motor repairs, continued to rise, from 4.5 per cent to 4.6 per cent - the fastest growth rate for almost nine years.

Clothes fell by the most, with prices down by 5.9 per cent compared with August last year - the biggest fall since the RPI series began in 1947. Although the price of clothing and footwear rose by 1.4 per cent in August compared with July after the summer sales, this was almost half the increase of August last year.

David Page, economist at Investec, said the weak rebound in high street prices "implies to us some lack of pricing power for retailers against a background of slowing consumer activity".If Thursday's official retail sales volumes for August prove as weak as Investec expects, "we believe that a slowdown in domestic household expenditure will persuade the [Bank's] monetary policy committee to ease rates once more to 'insure' against a more pessimistic outlook coming to pass", Mr Page said. RPIX is well below the Bank's target of 2.5 per cent but above June's 1.5 per cent recent low. Inflation is likely to pick up in coming months as the flooding in Europe is expected to push up the price of fruit and vegetables, and as last autumn's drop in petrol prices falls out of the index.
Source: Financial Times

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