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The latest inflation update brings an immediate welcome sign, it's gone down again. It's not a signficant drop by any means but it's still positive. However, this does not mean that when the MPC meets to determine whether to increase the base rate they will hold and do nothing.

What's changed?

The Consumer Price Index (CPI) has fallen from 6.8% in July to 6.7% in August. Some analysts had expected it to rise as high as 7.2%.

Core inflation has shown a more signficant improvement falling from 6.9% to 6.2%.

For clarity, CPI is a broad measure of inflation based on a wide range of goods and services. Core Inflation is a view of overall inflation which also includes those consumer goods and services but excludes volatile components such as food and energy.

Whichever way you look at inflation it is still a long way from the 2% target set by the Government.

Some prices are still rising

There are still a number of items that continue to rise, they include:

• Alcohol & Tobacco
• Clothing & Footwear
• Housing and Housing Services
• Transport
• Communication
• All goods

So whilst falling inflation overall is good it's never quite as easy as that. Some items continuing to rise impact people in different ways. But Inflation and every category measured can be fickle, up one month down the next, and vice versa. Fluctuations are expected, but continual rises are not welcome.

Interest rates

I was certainly betting on the Bank of England raising interest rates to 5.5% tomorrow. The fall in inflation was unexpected, so it will be a difficult decision for the Monetary Policy Committee tomorrow when they meet to decide.

I am still expecting a rise tomorrow but it may be last for a while, I don't think the MPC will take their foot off until November if inflation falls again. Having said that many are now suggesting the chances are greater than 50% of a hold at 5.25%.

We will find out tomorrow!