HEADLINE retail price inflation was flat at 1.3% last month and the key underlying measure was up just a touch, keeping some economists' hopes of another cut in interest rates next month alive.
Although underlying annual inflation crept up from its four-and-a-half-year low of 2.1% to 2.2% in June, it remains well below the Bank of England's 2.5% target. This measure excludes mortgage interest payments.
The Bank's Monetary Policy Committee faces a tricky decision next month. The signs are that activity is growing, but inflation remains muted with no signs of any significant pick-up in the near future.
Economists appear to be finding it difficult to call. There are wildly different predictions about rates, not just at the August MPC meeting but also next year.
Yesterday's inflation data, from the Office for National Statistics, contained no great surprises and they had no noticeable impact on the pound or the stock market.
Alcoholic drinks exerted the main upward pressure on the annual inflation rate last month. Drinks prices were depressed in June last year by offers during the World Cup.
The main downward pressure came from a drop in household goods inflation, from 0.8% in May to 0.6%. This appeared to confirm last year's summer sales were bettered this time round.
Seasonal food prices tumbled 4.2% in June and were 1.1% lower than a year earlier. Fresh fruit prices were 6% lower than last June, and the year-on-year rise in the price of potatoes was much lower last month than in May.
Jonathan Loynes, UK economist at banking group HSBC, still believes base rates ''have probably troughed'' at 5%. He expects a rise of 0.5% in the first half of next year.
But securities house Goldman Sachs said: ''Although interest rates are approaching a trough in the UK, it is premature to believe that the trough has already been reached or that a rising trend will be seen over the next year.''
And Stuart Green, at Credit Lyonnais, believed rates could fall a lot further.
''We think they will cut in August, maybe the last cut for the year, but next year could see another 50 basis points (0.5%) shaved off.''
The gap between services and goods price inflation remains extremely wide.
Annual services price inflation was 3.3% in June, the same as in May. For goods, the rate edged up from 0.7% to 0.8%.
The all-items retail price index remained at 165.6 in June and the headline inflation rate at a six-year low.
HSBC predicted underlying inflation would fall below 2% during the next six months, and Goldman Sachs believed a further improvement was in the pipeline.
The annual RPIY rate of inflation, which excludes mortgage interest payments and indirect taxes, was unchanged at 1.5%.
The harmonised index of consumer prices, the official European Union measure of inflation, rose by 1.4% in the UK in the 12 months to June. It had recorded annual inflation of 1.3% in May.
Economists expect labour market data due today to show that annual average earnings growth fell from 4.6% to around 4.2% in May.
Loynes, who expects a further reduction, pointed to the end of the bonus season and the fact that lower headline inflation was bringing annual pay settlements down.
In the economy as a whole, he sees a ''nice combination of accelerating activity and diminishing inflation pressures.''
Why are you making commenting on The Herald only available to subscribers?
It should have been a safe space for informed debate, somewhere for readers to discuss issues around the biggest stories of the day, but all too often the below the line comments on most websites have become bogged down by off-topic discussions and abuse.
heraldscotland.com is tackling this problem by allowing only subscribers to comment.
We are doing this to improve the experience for our loyal readers and we believe it will reduce the ability of trolls and troublemakers, who occasionally find their way onto our site, to abuse our journalists and readers. We also hope it will help the comments section fulfil its promise as a part of Scotland's conversation with itself.
We are lucky at The Herald. We are read by an informed, educated readership who can add their knowledge and insights to our stories.
That is invaluable.
We are making the subscriber-only change to support our valued readers, who tell us they don't want the site cluttered up with irrelevant comments, untruths and abuse.
In the past, the journalist’s job was to collect and distribute information to the audience. Technology means that readers can shape a discussion. We look forward to hearing from you on heraldscotland.com
Comments & Moderation
Readers’ comments: You are personally liable for the content of any comments you upload to this website, so please act responsibly. We do not pre-moderate or monitor readers’ comments appearing on our websites, but we do post-moderate in response to complaints we receive or otherwise when a potential problem comes to our attention. You can make a complaint by using the ‘report this post’ link . We may then apply our discretion under the user terms to amend or delete comments.
Post moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours.
Read the rules hereComments are closed on this article