Wednesday 18 August 2010

Fall in rise of inflation - but still well above MPC target!


The rate of inflation in the UK dropped slightly from 3.2% to 3.1% in July but still remains well above the Bank of England's 2% target.

Mervyn King, the governer of the Bank of England, said that the Monetary Policy Committee (MPC) believed the recent strength of inflation was down to "temporary" factors including the recent increase in the rate of VAT to 17.5%, past oil price rises and more expensive imports due to depreciation in the pound since 2007. The Bank expect inflation to fall below the 2% target in 2012.

The slight fall in the rise of inflation was due to a fall in transport costs (price of second hand cars and fuel) as well as a fall in the price of clothing and footwear, which managed to offset rises in food and non-alcoholic drinks.

Consumer Price Index (CPI) - Measure of changes in the purchasing-power of a currency and the rate of inflation. CPI expresses the current prices of a 'basket' of goods and services in terms of the prices during the same period in a previous year, to show effect of inflation on purchasing power.

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