Britain inflation rate falls back to zero percent

London, Sep 16 (IANS) Britain’s inflation rate fell to zero percent in August, down from 0.1 percent in July due to lower fuel prices, an official data said.

Oil prices hit a sharp fall of around $42.50 per barrel in late August, and witnessed a six-and-a-half year low, Xinhua news agency quoted Office for National Statistics (ONS) as saying on Tuesday.

The rate of core inflation – which strips out the impact of changes in the price of energy, food, alcoholic drinks and tobacco – fell to 1.0 percent in August from the previous rate of 1.2 percent.

“There is still an even chance that we will see the CPI measure turn negative again in the next couple of months,” Martin Beck senior economic advisor to the Ernst & Young (EY) ITEM Club said.

“The renewed drop in oil prices is steadily feeding through to prices at the pumps while recently announced price cuts for domestic gas bills will hit the index next month,” Martin Beck said.

EY is a global professional services firm, headquartered in London.

Added to these factors, Tuesday’s producer prices data suggested that dis-inflationary pressures have intensified in the supply chain, while core inflationary pressures remained subdued, he said.

Inflation, as measured by the Consumer Prices Index (CPI), was unchanged in the year to August 2015.

It is a 12-month rate of 0.0 percent, down from 0.1 percent in the year to July 2015.

According to ONS, in the year to August 2015, food prices fell by 2.8 percent and prices of motor fuels fell by 12.9 percent.

These two groups have provided some of the largest downward contributions to the 12-month rate during 2015.

In August 2015, the food and motor fuels groups in total reduced the CPI 12-month rate by approximately 0.7 percentage points.

Low inflation reinforces the case for keeping low interest rates, British Chambers of Commerce economist David Kern said.

The Bank of England, which is targeting inflation of two percent, expects inflation to remain around zero throughout autumn before increasing slowly.

The bank is expected to start to raise interest rates in the first quarter of 2016.

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