Food price fall sets a record

DIANE COYLE

Economics Correspondent

The price of a typical iceberg lettuce dropped from 88p to 48p last month, one reason for a record June fall in seasonal food prices.

The warm weather brought British lettuces and tomatoes out a month earlier than usual. Cheaper fresh foods made up for higher second-hand car prices, keeping the increase in retail price inflation modest last month. Inflation was 3.5 per cent, or 2.8 per cent on the target measure excluding mortgage interest payments (RPIX).

The comparison with May inflation is complicated by a Central Statistical Office error in calculating the housing component. The mistake means the headline inflation rate in both May and March was understated by 0.1 percentage points.

In line with its tradition of never revising the RPI figures, the CSO still publishes inflation for May as 3.4 per cent, and RPIX inflation as 2.7 per cent. But prices were roughly flat last month.

So were retail sales volumes, according to the CBI's monthly survey of distributive trades. A slight increase in June was well below retailers' expectations, and continued a series of sluggish rises.

The biggest volume increases were reported by clothes stores, followed by booksellers and stationers. The sharpest reductions compared with a year ago were reported by furniture and carpet retailers and off-licences.

Seasonal food prices fell a whopping 7.7 per cent. There were also small downward contributions to inflation from prices of clothing and footwear, fares, and catering.

Prices for non-seasonal foods such as dairy products and processed meals rose. The episode of deep discounting by supermarkets has come to an end, replaced by loyalty card competition.

Housing costs also increased last month. Aside from the CSO's error, house prices rose before adjustment for seasonal variations.

There was a small decline in the price of personal goods and services, but last June saw a bigger drop, so this component put upward pressure on the 12-month inflation rate.

The Treasury drew comfort from the figures, saying that although some cost increases were feeding through into inflation, there was little sign of domestic inflationary pressure.

The Government's statisticians have got only one figure wrong in the 900,000 they have had to process in order to calculate the retail price index so far this year. That single error is unfortunately going to cost the Government pounds 300,000 in compensation.

The housing depreciation component of the index, introduced only this year, was miscalculated, leading to an understatement of the RPI in February to May. Headline inflation was underestimated by 0.1 points in March and May.Holders of index-linked National Savings certificates and affected index-linked gilts will be compensated for the erroneous inflation figure.