Inflation drops to 2.8%
Inflation fell to 2.8% in July, and is likely to be the "start of a sustained drop", according to Capital Economics.
The Office for National Statistics said air fare, clothing and recreation were the largest contributors to the 0.1% fall in the consumer prices index (CPI), which ran at 2.9% in June, while a rise in petrol and diesel prices offset it.
"Martin Beck, UK economist at Capital Economics, said it was "particularly encouraging" that the core rate of inflation, which is a more long-term measure, fell from 2.3% to 2%.
Beck added that signs of economic recovery and subdued price pressure indicate "further falls in inflation ahead".
But Aston Goodey, director at MGM Advantage, said the current rate of inflation will still leave UK households struggling to find at extra £18 billion a year in total to enjoy the same standard of living as they did the same time last year.
"Many people are struggling, feeling the constant pressure to find the extra money to trying to find savings elsewhere, especially when wage growth is subdued," he added, pointing to price increases in essentials such as energy, fuel and food.
This article was written for our sister website Money Observer
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).
The Consumer Price Index is the official measure of inflation adopted by the government to set its target. When commentators refer to changes in inflation, they’re actually referring to the CPI. In the June 2010 Budget, Chancellor announced the government’s intention to also use the CPI for the price indexation of benefits, tax credits and public sector pensions from April 2011. (See also Retail Prices Index).