"As expected, the main indicators of inflation have eased back this month from the small spike we saw in the previous data, caused mainly by seasonal effects of the timing of Easter. Overall, the wider inflationary environment remains benign: global commodity prices remain relatively weak with oil heading towards $100 per barrel. The effect of weaker prices in international commodities is further amplified by the relative strength of Sterling in recent months, causing import prices to soften further.
"The lower levels of inflation are primarily driven by the production sector with goods inflation weak at just 0.8%; the service sector continues to see relatively strong inflation of 2.5%, close to its long-run average. In effect, the UK is importing weak inflation, though strong competition in the retail sector is keeping a lid on prices, particularly for clothing.
"The latest data confirms that real-terms wage rises are yet to appear. Although the recent data shows total pay falling by 0.2% - the first contraction since 2009 - this is heavily influenced by the timings of bonuses being taken to avoid the changes in additional income tax rates. Regular earnings are still growing at 0.6%, albeit below the rate of inflation, meaning there is a risk to future household expenditure being constrained.
"Our outlook is for inflation to remain benign, averaging around 2% for the year with perhaps a slight increase in 2015. Wage growth cannot remain stagnant for much longer with the labour market tightening as it is, though there are few signs that this is yet taking place. Employers should, however, ready themselves for higher pay awards to both recruit and retain staff in the future."
CPI inflation in July 2014 was 1.6%, down from 1.9% in June
RPI inflation in July 2014 was 2.5%, down from 2.6% in June