U.K. Inflation Slows to Match 5-Year Low on Food Prices

By Jennifer Ryan

U.K. inflation slowed to match the least in five years in August as a supermarket price war and weather effects pushed food prices down the most in more than a decade.
The rate of consumer-price growth fell to 1.5 percent from 1.6 percent in July, the Office for National Statistics said today in London. Excluding May, that’s the lowest reading in five years. Food and non-alcoholic drinks dropped an annual 1.1 percent, the most since 2003.
The BOE kept its key interest rate at 0.5 percent on Sept. 4 and Governor Mark Carney said days later that the current inflation environment is benign. He also said the time for higher borrowing costs is approaching and that policy tightening will be
needed to ensure the central bank meets its 2 percent inflation goal.
Inflation has now been below the BOE’s goal for eight months, the longest since a stretch that ended in 2005. That covers much of a period former BOE Governor Mervyn King described in 2007 as NICE - an acronym for “Non-Inflationary Consistent Expansion.”
The August rate matched the median estimate of 32 economists in a Bloomberg News survey. Core inflation quickened to 1.9 percent from 1.8 percent.
The pound stayed lower against the dollar after the data were published and was trading at $1.6173 as of 9:32 a.m. London time, down 0.4 percent from yesterday.

Food Prices

In August, consumer prices rose 0.4 percent from the previous month, with clothing up 2.6 percent. Food prices declined 0.2 percent, a further indication of the discounting by U.K. supermarkets as they fight to lure customers. Part of the weakness in food prices is also related to better harvests this year compared with 2013, when poor weather damaged crops, according to the ONS.
Retail-price inflation, a measure used as a basis for the inflation-linked bond market and wage negotiations, slowed to 2.4 percent in August from 2.5 percent, today’s data showed.
A separate report showed that input prices at factories dropped 0.6 percent in August from July and were down 7.2 percent from a year earlier, a 10th consecutive decline. Output prices fell 0.1 percent on the month and 0.3 percent on the year.