UK inflation rate back at 0% as oil and food prices fall

The UK inflation rate dropped to 0% in August, down from 0.1% the previous month, the Office for National Statistics has reported.

Clothing prices did not rise as much as expected, which contributed to the fall in Consumer Price Inflation (CPI), calculated based on a virtual basket of goods and services.

Transport prices fell and lower food prices also weighed down the inflation rate, which has floated around 0% for the past few months, as supermarkets continue to fight each other on the competitive market.

Low inflation means a possible rise in interest rates will be postponed even further, as the Bank of England waits for prices to go up slightly before considering a rate hike. The bank has set a target of 2% for inflation.

Maike Currie, associate investment director at Fidelity Personal Investing, said that the fall in inflation was due to the lower oil prices, the ongoing supermarket war and "a washed out summer keeping shoppers away from the high street".

She said: "It is important to distinguish between disinflation – a slowdown in the rate of inflation – and deflation – a persistent and ongoing fall in prices. The two are not the same thing. Both food and fuel – the main drivers of the historically low inflation numbers we are seeing – are two essential items.

Currie underlined the threats deflation can bring, saying: "No-one is going to delay their weekly trip to the supermarket or stop filling up their car's petrol tank because they expect prices may fall next month. Deflation is dangerous because it causes companies and consumers to do the exact thing that causes more deflation – delay spending in the hope of further price falls in the future."