Inflation slides to lowest level since November 2009

Cost of living drops to 2.4% in June with UK retailers discounting clothes and shoes to shift summer stock

Retailers were forced to slash the price of summer clothes and shoes last month to tempt rain-drenched consumers into the shops, driving inflation to its lowest level since November 2009.

The Office for National Statistics said inflation measured on the consumer price index slipped to 2.4% in June, down from 2.8% in May, with clothing and footwear prices accounting for the largest downward contribution.

The 4.2% fall in clothing prices over the month was twice as large as between any May and June since the ONS began measuring the CPI in 1996, as cash-strapped shoppers held back from restocking their wardrobes in the grim weather.

“Downward effects came from across the clothing and footwear sector, with reports of summer sales starting earlier than last year,” it said.

Food prices and the cost of transport added to the fall in inflation, the ONS said, with retailers reporting weaker than usual demand for meat as the torrential rain put paid to barbecue plans.

The price of “miscellaneous goods and services” also fell, said the ONS, driven by personal care products, “notably deodorant and sunscreen”, as the sun failed to materialise.

Prices across the economy have now fallen for two consecutive months for the first time since early 2009, when consumer confidence collapsed, and the government cut VAT to stimulate the economy during the financial crisis.

Cheaper petrol, as the fall in crude oil prices on world markets fed through to forecourts, accounted for part of the decline in inflation, the ONS said. Petrol prices dropped by 4.3p a litre to £1.33.

On the wider retail prices index, inflation also declined, to 2.8%, from 3.1% in May – its lowest level since December 2009.

Chloe Smith, the economic secretary to the Treasury, said, “Inflation has more than halved since September, meaning a little less pressure on family budgets. This lower inflation should support high-street spending and growth in the economy in the months to come.”

Andrew Goodwin, senior economic adviser to the Ernst and Young Item Club, said: “Wages should be able to keep pace with prices over the second half of this year and pull ahead next year, providing a significant boost to household finances and helping to kickstart the consumer recovery.”

However, with average pay rising at just 1.4% a year, according to the latest unemployment figures, many households still face declining real incomes.

Brendan Barber, general secretary of the TUC, said: “While the sharp fall in inflation will bring welcome relief for many workers, millions are still facing real wage cuts as the longest squeeze in living standards for decades continues.”

Research by consultancy Kantar Worldpanel suggested that discount retailers have increased their share of the market, as consumers look for cheaper alternatives.

Edward Garner, director of Kantar, said: “We are seeing big cutbacks by consumers as they continue to respond to this current period of austerity. The success of the discounters, Aldi and Lidl, is a clear example of shoppers watching their purses.” The two cut-price chains both achieved their highest ever market share, at 2.9%, in the 12 weeks to 8 July.

Falling inflation puts the Bank of England’s 2% target within sight, and strengthens the case for the new round of quantitative easing its monetary policy committee announced earlier this month. But it also underlines the weakness of consumer demand on the high street.

John Zhu, of HSBC, said: “Inflation for a wide range of consumer staples is lower than seasonal averages due to a weak demand environment reducing producer pricing power.”

On Monday the International Monetary Fund sharply lowered its economic forecast for the UK this year to growth of just 0.2%, compared with a previous forecast of 0.8%.


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