Falling inflation is not a cause for concern

17th September 2012

Annual CPI inflation was 2.

5% in August 2012, down from 2.6% in July Annual RPI inflation was 2.9% in August 2012, down from 3.2% in July  Commenting on the inflation figures for August 2012 published today by the ONS, David Kern, Chief Economist at the British Chambers of Commerce (BCC), said: -The fall in inflation in August was widely expected, following setbacks in July. Current trends suggest that inflation will be down to 2% at the end of the year, and will fall slightly below the target during 2013. There are risks however, that oil and food prices may rise in the coming months, which may put upward pressure on inflation again. Falling inflation benefits the UK economy as it reduces the squeeze on businesses and consumers and underpins domestic demand. -Since UK inflation has been above the 2% target for prolonged periods in recent years, a temporary fall below this next year should not be a cause for concern. With this in mind, we still believe that the Bank of England should not use additional QE to limit falls in inflation. Instead, the MPC and the government should concentrate on measures that will directly boost bank lending. This can be done through the Funding for Lending scheme and more significantly, through the early creation of a business bank.