Summer sales expected to drive fall in inflation

Summer high street sales are expected to help drive another fall in inflation numbers today, but rises in oil prices are thought to ensure household budgets stay under pressure.

Summer sales on the high street are expected to have helped drive another fall in inflation figures today, but rising oil prices are likely to ensure household budgets remain under pressure.

Experts are pencilling in a fall in the Consumer Prices Index (CPI) to 2.7% in August from 2.8% in July, which would be the second month in a row of easing inflation.

It is thought discounting among retailers and slightly lower food price rises may help bring CPI down while petrol costs rose less than they did a year earlier.

But recent spikes in the cost of crude may lead to sharp inflation once again at the fuel pumps. The crisis in Syria sent Brent to a six-month high of 117.3 US dollars (£73.8) a barrel at the end of August.

While it has since eased back a little as the threat of imminent US strike action has receded, the volatile situation in Syria could send oil jumping sharply higher once more.

Howard Archer, chief UK and European economist at IHS Global Insight, said: "Consumer price inflation could yet touch 3% in the near term due to the recent move back up in oil prices."

He predicts that CPI will begin to ease back thereafter, forecasting a drop to 2.8% by the end of the year, before falling to 2.2% at the end of 2014.

Inflation has remained stubbornly above the Bank's 2% target since December 2009 and families have had to battle rising costs with muted wage growth.

Consumer spending power and savings are being steadily eroded by above-target inflation, with wages increasing by just 1.1% in the three months to July compared with a year earlier.