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Inflation edged upwards slightly in June – the first increase this year – with CPI rising from 0.5% to 0.6% as lockdown eased and the usual seasonal sales of items went out the window. Toys and games, clothing and some pharmacy items all served to push up prices in the month.
Clothing prices pushed up inflation, as they would usually follow a pattern of lots of buying before summer sales hit in May and June. The coronavirus lockdown trampled on this usual pattern of buying and so while lots of clothes are on sale at the moment, they haven’t seen the big one-month fall in prices in June they usually would. Bizarrely contact lenses were also a reason behind price rises, along with some other chemist items, such as cough syrup.
The inflation rise in June doesn’t necessarily mean that it’s only going to head upwards this year. As we see the effects of lockdown easing further we’d expect to see some increases in prices. But everyone from the Bank of England to the Office for Budget Responsibility expects inflation to fall further this year, before rebounding slightly next year. Once the fall in the oil price and the cut to energy prices from Ofgem’s price cap has filtered through the system, we should see inflation start to meaningfully pick up again. However, so much could happen with the pandemic and economy between now and then that even the most avid betting man wouldn’t take on the gamble of predicting where inflation will be this time next year.
Some doubt has been cast over how accurate the ONS’s inflation figures are, as it still can only collect prices for 85% of the items in its virtual basket. A number of leading research groups think inflation is actually running much higher than the official figure, as what we’re all spending our money on has changed dramatically. Why include a price for a holiday in the inflation basket, for example, when none of us are going away at the moment?
Take a look at the latest ONS figures
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Written by:
Laura Suter
Laura Suter is head of personal finance at AJ Bell. She is a multi-award winning former financial journalist, having specialised in investments. Laura joined AJ Bell from the Daily Telegraph, where she was investment editor. She has previously worked for adviser publications Money Marketing and Money Management, and has worked for an investment publication in New York. She has a degree in Journalism Studies from University of Sheffield.