14 July 2009, 18:10  UK: June, Inflation 1.8%

A key measure of inflation has fallen below the Bank of England's target rate of 2% for the first time since 2007. Lower food prices caused the Consumer Prices Index (CPI) to drop to an annual rate of 1.8% in June from 2.2% in May, official statistics showed. The Retail Prices Index (RPI) inflation measure, which includes mortgage interest payments and housing costs, fell to -1.6% from -1.1%. The RPI is now at its lowest since ONS records started in 1948. The Bank of England aims to keep inflation at 2% to maintain price stability and more broadly, economic stability. Lower prices for meat, milk and fruit last month were the main reason for the fall in inflation. "A significant downward effect also came from furniture prices, which rose by less than last year," the Office for National Statistics said. It also pointed to a large upward pressure on the CPI rate from the recreation and culture sector, with computer games in particular rising by more than a year ago. The CPI is far below what it was last September, when the rate hit 5.2% because of high oil and food prices. The Bank of England is now predicting CPI will fall below 1% this year, as the downturn hits demand and sends prices lower. "The figures are bang on consensus," said economist Philip Shaw of Investec.

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