Cheaper potatoes make a hash of inflation figures
by PATRICK HOSKING
thisislondon.co.uk
thisislondon.co.uk
A COLLAPSE in the price of the humble potato caught
the City by surprise today, sending the headline inflation
rate to its lowest for 36 years and casting doubt on the
necessity for last week's interest rate rise.
The retail prices index for
August unexpectedly fell from
1.3% to 1.1%, a level last
reached in July 1963. The
targeted RPIX rate, which
excludes mortgage interest pay-
ments, fell from 2.2% to 2.1%,
wrongfooting analysts who had
pencilled in an increase to
2.3%. It has now undershot the
Government-set target of 2.5%
for five successive months.
The fall gave ammunition to critics of the Bank of England,
who argue that last week's rise in base rate was
unnecessary. The Confederation of British Industry said
today's data made the quarter-point increase to 5.25%
last week 'premature'. The British Chambers of
Commerce said the figures showed the rate rise was
'misguided and inappropriate'.
David Coleman of CIBC said: 'The Bank looks
embarrassed not only has underlying inflation not risen in
August as many had feared, it has actually fallen to its
lowest level since October 1994.'
But Jonathan Loynes of HSBC said the fall was largely
due to one-off seasonal factors. The swing in potato
prices, down 4% in August compared with up 13% in
July, was alone responsible for 0.1% off the RPI. 'The
monetary policy committee may pause for a while before
lifting rates again, but these figures will not keep the hawks
at bay for long,' he said. Services prices were still rising at
a worrying 4.1%.
The Office for National Statistics said other seasonal
foods and some discounting in the clothing and footwear
sector also helped bring the inflation rate down. However,
these were partly offset by rises in petrol prices and
mobile phone tariffs.
Richard Spinks, field manager of the British Potato
Council, said: 'Good heavens! I knew the potato was a
wonderful vegetable, but I didn't know it figured in world
economics.'
The absence of May frosts and a good combination of rain
and sun had produced a bumper crop of potatoes earlier
than usual this year, he said. That had driven down prices.
Potatoes feature heavily in the average 'basket' of goods
and services used to measure inflation, accounting for œ6
of every œ1000 of household expenditure.
The RPIY measure of inflation, which excludes mortgage
payments and indirect taxes, grew 0.3% month on month
and 1.4% year on year.
The data sent the pound more than a third of a cent
weaker to $1.6045. |
