View your shopping bag

Items: (0) £0.00
  • €
  • $
  • £

Checkout

Surprising inflation figures

The inflation figures released this morning took many analysts by surprise. The general view was that CPI inflation would fall to 2.0%, which would put it bang on the Bank of England’s target. However, CPI inflation did fall in May but only from 2.3% down to 2.2%. This continues to put us well above the EU average, which currently stands at 1.2%.

 

The largest downward pressure on CPI inflation came from food and non-alcoholic drinks coupled with lower electricity prices. By contrast, the biggest upward pressure came from alcohol and tobacco, which reflected an increase in excise duty in this year’s Budget. There were also increases in the price of dvd’s and televisions.

 

The changing inflationary trend can be seen in the graphic below.

Source: ONS

Source: ONS

 

RPI inflation, which includes mortgage interest payments, was already in negative territory in April at -1.2%, but this rose slightly in May to -1.1%. This measure was mainly affected by the same pressures as the CPI figure, but there was a slight rise in average mortgage interest payments this year compared to a year ago. At least this figure did not move further into negative territory, which would have increased the risk of a deflationary episode.

 

RPIX inflation, which is the RPI minus mortgage interest payments, fell from 1.7% in April to 1.6% in May.

 

The markets responded positively to these figures as they were taken as indicating a possible robustness in the economy, and the pound rose against both the euro and the dollar.

 

General expectations are that CPI inflation will continue to fall in the months ahead although there is some concern about the unknown effects of quantitative easing on future inflation levels.

Tags: , , , , ,
Posted in Bank of England, Deflation, Inflation, sterling

Comments are closed.