Clothing and petrol cuts fuel inflation fall

The Consumer Prices Index (CPI) annual measure fell from 3.4% to 3.2% over the month, the Office for National Statistics (ONS) has revealed.

The Retail Prices Index, which unlike the CPI also includes housing costs, fell from 5.1% to 5% over the same period.

Those inflation figures measure the rise in the cost of living in the 12 months to June.

Clothing and footwear prices fell by 2.1% - the biggest reduction seen in June since the ONS began collecting monthly figures 14 years ago (see the Cheap Online Shopping guide).

There was also some cheer for motorists as petrol prices fell by an average 2.6p a litre to 117.9p - in contrast with a 4.4p hike a year earlier - dragging down the rate of inflation (see the Cheap Petrol & Diesel guide).

The impact of petrol and clothing outweighed increases, such as rising air fares - with ticket prices to South Africa doubling for the World Cup - and higher premiums for car and house insurance, statisticians add.

The figures will soothe some concerns among inflation watchers at the Bank of England, although CPI remains well above the Monetary Policy Committee's (MPC) 2% target and has stayed at 3% or higher throughout 2010.

The Bank predicts the CPI will gradually fall back towards target later this year as the economic slack built up by a record recession drags down prices.

The MPC has left interest rates at a record low of 0.5% since march 2009.

But arch MPC "hawk" Andrew Sentance made the first call for a rate hike in almost two years during June, arguing that inflation had proved more resistant to recession than expected and that the recovery was strong enough for the emergency support put in place by the MPC to be gradually withdrawn.

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