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Overall inflation stagnates but food prices rise


An expected drop in inflation last month did not materialise but with the rate remaining the same, fears of an interest rise have eased further.

The official governmental measure of inflation the Consumer Price Index (CPI) remained at 4.5 per cent during May, according to the Office for National Statistics.

Although the overall level of inflation stayed static, there were many pressures both negative and positive on prices, with food & non-alcoholic beverages the largest upward pressure to CPI.

Prices in this section grew 1.3 per cent between April and May this year, compared to a 0.1 per cent fall during the same period a year ago, as grocery shoppers continued to bare the brunt of rising commodity costs.

There was better news for consumers with the slowdown in price growth in furniture, household equipment and maintenance goods, from 1.2 per cent last year to 0.4 per cent, whilst transport services were the largest downward pressure on the overall rate.

Jonathan Loynes, Chief European Economist at Capital Economics, said: “May’s UK consumer prices figures, showing the headline rate steady at 4.5 per cent, are in line with the median forecast but disappointed our own hopes for a small fall.”

Many have been worried that a continued rise in inflation, well above the government’s target of two per cent, will force the Monetary Policy Committee (MPC) to raise interest rates before the end of the year, but this is looking increasingly unlikely.

Although Capital Economic still believes inflation will rise above five per cent in late summer due to growing food costs and rising energy prices, it believes the increase will be temporary.

Loynes added: “We still believe that inflation will drop back sharply as food, energy and VAT effects start to fade and weak activity, spare capacity, slow wages growth and weak money growth bring core inflation back down.

“With recent signs that inflation expectations are falling, the MPC should continue to hold its nerve and leave interest rates unchanged.”

Published on Tuesday 14 June by Editorial Assistant

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