The UK’s Office of National Statistics released July CPI and PPI figures which suggest the UK’s period of deflation may be coming to an end. The CPI grew by a meagre 0.1% for the year to July, up from June’s figure of 0.0%. In the year to July 2015, food prices fell by 2.7% and prices of motor fuels fell by 11.4%. These two groups have provided some of the largest downward contributions the CPI and reduced the headline rate by approximately 0.7 percentage points. Lower fuel prices also helped lower producers’ input prices as the overall price of materials and fuels bought by UK manufacturers fell 12.4% in the twelve months to July.
The less-volatile core measure fell 4.9% for the year, a slightly larger fall than the 4.7% in June. Core factory gate prices rose 0.3% in the 12 months to July 2015, higher than the comparable June figure of 0.1%. The net result should be a rise in profitability for UK firms as costs rose at a lower rate than revenues.
Earlier this year the BoE governor Mark Carney had said deflation during 2015 was “more likely than not” but it was expected to be temporary. The pound rose on the figures and economists believe official rates will rise in the first quarter of 2016.