The news over the last month suggests that the wet weather is having more of an impact on inflation than activity. To start with, retail sales were reasonably healthy in June. And the CBI distributive trades survey suggests that this continued into July. What’s more, the impact on activity from the flooding is likely to be small – the hardest hit areas contribute relatively little to total GDP. However, anecdotal evidence suggests that the floods will push food price inflation higher. Combined with the recent rise in the oil price, it now looks less likely that CPI inflation will fall back to its target soon.
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