CPI Inflation, July 2021

CPI inflation fell by a large amount (0.5%) and is now at 2.0%.  All of this effect was due to the “base effect” of the spike in inflation last year (June-July 2020) dropping out. There was no new inflation in June-July 2021 as the general level of prices remained constant. The reduction in inflation was spread across most sectors, the only exception being Transport, which showed a large month on month increase, largely due to motor fuels and second- hand car prices. Clothing and footwear also showed a significant decrease due to the July sales.
Looking forward, when we allow for the reversal of VAT reductions in the hospitality sector and scheduled rise in household energy prices announced by OFGEM, we expect inflation to increase rapidly in the later months of 2021 reaching a peak of 3.9% or higher in the first quarter of 2022, falling to about 3% by July 2022.