Computer game prices bucked the downward trend last month, perhaps because of the lockdown has created a boom in home gaming.
Prices in the ‘games, toys and hobby’ category jumped by 3.8% year-on-yer in August – driven by computer game downloads.
The ONS says:
It is possible that prices have been influenced by the coronavirus (COVID-19) lockdown changing the timing of demand and the availability of some items, particularly consoles.
However, it is equally likely to be a result of the computer games in the bestseller charts. Price movements for computer games can often be relatively large depending on the composition of these charts.
But while computer game prices rose, package holiday prices fell.
UK inflation falls: What the experts say
Tom Stevenson, investment director at Fidelity International, says the UK is facing ‘disinflationary’ pressures – which go beyond one month’s cheap meal offers.
“Eat out to help out was the main influence on the lowest inflation rate for nearly five years. But disinflationary forces were evident across the economy as fears about an autumn surge in unemployment held back consumer confidence. Food, clothing and transport all exerted downward pressure on prices. It remains to be seen if this is part of continued downwards movement or just a monthly dip.
“Weak demand should ensure that inflationary concerns remain on the back burner for now and price growth will track closer to zero through to the end of the year. Rising coronavirus cases, the reintroduction of restrictions, negative wage growth and the prospect of half a million redundancies as the furlough scheme winds down this autumn will all play a part in keeping consumer spending subdued.
Other pressing issues, like a possible collapse in the Brexit talks and consequent pressure on sterling, will overshadow any inflation worries for now.”
The TUC says the UK economy is suffering from a lack of government stimulus:
Neil Birrell, chief investment officer at Premier Miton, points out that August’s inflation reading is actually a little higher than expected
“The inflation data in the UK surprised on the upside. The core year-on-year CPI was up 0.9% against expectations of 0.5%. Rising inflation has been much discussed as the inevitable consequence of all the stimulus being injected into the economy. Policy makers won’t be worried about this number, they are more likely to be pleased there is activity in the economy.”
Yael Selfin, chief economist at KPMG UK, predicts inflation will remain low for some time:
“The Eat Out to Help Out scheme and the cut to VAT for hospitality businesses helped push consumer inflation to just 0.2% in August, for the first time since December 2015.
“The low inflation will serve to protect households’ spending power at times when many are feeling under pressure.
“While we expect an initial bounce back in inflation in September, as the Eat Out to Help Out scheme comes to an end, overall inflation is likely to remain well below the Bank of England’s target for some time.”
Core inflation, which strips out food and energy costs, also fell last month.
Prices across UK hotels and restaurants were 2.8% lower than a year ago in August, the ONS adds.
That’s the first negative inflation reading across the sector in at least 30 years.
The ONS explains:
The restaurants and hotels group made a downward contribution of 0.27 percentage points in the latest month reflecting a negative 12-month inflation rate of 2.8%. This is the first time that the 12-month rate has been negative since the series began in 1989. The data reflect the effect of the Eat Out to Help Out Scheme. Under this, consumers could get a 50% discount (up to a maximum of £10 per diner) on food and non-alcoholic drinks to eat or drink in every Monday, Tuesday and Wednesday in August at participating establishments.
The reduction in Value Added Tax (VAT) from 20% to 5% on the hospitality sector also contributed to the fall in prices.
This chart shows the details:
Charts: How UK inflation tumbled
This chart from today’s inflation report shows how Rishi Sunak’s discount meal scheme pulled inflation down last month.
And here’s the result – the lowest annual inflation rate in almost five years:
Introduction: UK inflation tumbles
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Inflation across the UK has fallen sharply, as the government’s Eat Out to Help Out discount meal scheme drove down the cost of living.
Figures just released show consumer prices rose by just 0.2% year-on-year in August, with cheaper clothing and air fares also pulling the CPI down according to The Office for National Statistics.
That’s the lowest inflation rate since late 2015, and sharply down on July’s inflation rate of 1%.
The one hundred million meal deals paid for by the Treasury were the primary cause of this easing of the cost of living, as people flocked to restaurants, bars and cafes to save up to £10 per head.
The ONS says:
- Falling prices in restaurants and cafes, arising from the Eat Out to Help Out Scheme, resulted in the largest downward contribution (0.44 percentage points) to the change in the 12-month inflation rate between July and August 2020.
- Other smaller downward contributions came from falling air fares and clothing prices rising by less between July and August 2020 than between the same two months a year ago.
- The largest, partially offsetting, upward contributions came from games, toys and hobbies, accommodation services, road transport services and second-hand cars.
More details and reaction to follow…
Also coming up today
The US Federal Reserve releases its latest economic forecasts tonight, at the end of its latest monetary policy meeting (which began yesterday).
Fed chair Jerome Powell will also hold a press conference, where he’s likely to sound rather dovish. Last month he announced a new ‘average inflation targeting regime’ which would give him more leeway before tightening monetary policy.
Powell will also be keen to sound uncontroversial ahead of the US election in two months time, so investors should contain their excitement….
As Adam Cole of RBC Capital Markets puts it:
No policy changes are expected from the Fed and given Powell’s recent speech at Jackson Hole, there should be relatively little for the statement or press conference to add.
While acknowledging the more rapid improvement in the economic backdrop, we expect the message to remain one of caution.
- 7am BST: UK inflation report for August
- 10am BST: Eurozone trade balance for July
- 1.30pm BST: US retail sales
- 3.30pm BST: US weekly oil inventory statistics
- 7pm BST: Federal Reserve interest rate decision
- 7.30pm BST: Fed chair Jerome Powell holds press conference