Falling inflation will support domestic demand in the economy

  • Annual CPI inflation down from 2.8% in May to 2.4% in June
  • Annual RPI inflation down from 3.1% in May to 2.8% in June
  • The biggest downward pressures on prices came from clothing and footwear

Commenting on the inflation figures for June 2012 published today by the ONS, David Kern, Chief Economist at the British Chambers of Commerce (BCC), said:

“Inflation fell in June, which is positive news for the economy. If these trends continue, the squeeze felt by businesses and consumers will ease, and improved disposable incomes will boost demand in the economy. Lower global energy prices and the strong pound against the euro have contributed to these downward pressures. The rise in sterling could adversely affect competitiveness, but this is likely to be offset by increased demand as a result of lower inflation.

“There is a chance that towards the end of the year or in early 2013, inflation will temporarily fall below the 2% target. This will follow a prolonged period of above target inflation, and should not be a cause for concern for the MPC. While austerity measures are putting downward pressure on demand, there would be nothing wrong with allowing below target inflation to support consumer spending. With this in mind, we believe there is no need for further increases in quantitative easing.”

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