Low food prices push inflation down

15 August, 2007

Consumer Prices Index (CPI) annual inflation has fallen sharply from 2.4% in June to 1.9% in June, leading to hopes that further rises in interest rates will not be necessary.

Low food prices were the biggest contributor to the fall in consumer price inflation, mainly due to supermarket-led price reductions on a range of products, including meat.

Chicken and bacon prices have been slashed by supermarkets looking to compete for a bigger market share. Chicken in particular has become the focus of many retail price wars, with fresh chicken and chicken products sold at all four major multiples at heavily discounted prices. Beef prices saw little change this July, compared with price rises last year, following the lifting of the 10-year export ban.

Retail Prices Index (RPI) inflation has also fallen to 3.8% in July from 4.4% in June - influenced by similar factors to the CPI.

It is difficult to tell how meat prices will affect the CPI over the next few months. Heavy rain and flooding, combined with rises in feed costs, might cause meat prices to rise again but the FMD export ban could cause a collapse in the market, which would offset this effect.





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