UK inflation: A positive surprise for prices

Anyone looking for evidence of homegrown price pressures will struggle to find it in the latest inflation numbers.

Against expectations, the "headline" rate has fallen from 4.5% to 4.2%.

But we know the monthly figure has been jumping around.

That will be less interesting to the Bank of England than the forces acting underneath.

Once again, the price rises are almost all concentrated in the areas where consumers and - to a lesser extent - retailers have least room for manoeuvre, notably food.

The food index is now 6.9% higher than a year ago, compared to an annual rise of 5.8% in May.

Rising food prices are nothing new. The reason the overall CPI has still managed to fall by 0.3 points is that prices have been flat or falling in the parts of the economy where consumers have greater discretion.

That shows up clearly in the sharp decline in the CPI "core" index, which excludes food and energy, from 3.3% to 2.8%.

Put it another way, it's hard work these days trying to sell things to people they don't strictly need - as any "consumer facing" company will unhappily confirm.

"Recreation & culture", "leisure services", "clothing and footwear" - if it sounds like it might be fun to buy, it's a fair bet the price has gone down.

Prices in the broad, "recreation and culture" category are now 0.5% lower than last June.

That's the largest fall since the start of 2009, in the depth of the recession, and the first negative number for that category in more than two years

The net result is that prices, on average, have fallen between May and June, for the first time since 2003.

I don't think the Bank's economists will be tearing up their forecasts on the basis of this month's figures.

The chances are that inflation will rise again before it comes down for good - for example remember all those gas price rises we now have waiting for us in the autumn.

Another non-discretionary purchase we will all now be forking out more for.

But when you combine these figures with increasingly downbeat expectations for next week's GDP number, it's been a good few weeks for the doves on the MPC, who think the UK economy will be in the high dependency unit for some time yet.