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Inflation falls faster than expected

The government’s target measure of inflation, CPI, fell from 3.7% in April to 3.4% in May. This was a larger drop than most analysts were expecting.

The largest downward push on prices was from food and drinks, but there was also downward pressure from petrol where prices had risen more quickly a year ago, and recreation and culture where there were downward effects across a wide range of goods and services.

The only large upward pressure came mainly from domestic electricity where average prices were constant between April and May this year, but had actually fallen by 2.2% between these months last year.

The recent trend in inflation can be seen in the graphic below.

Annual Inflation Rates - 12 month percentage change. Source: ONS


RPI inflation was 5.1% in May which was down from 5.3% in April. This measure was affected by the same items as the CPI but in addition to these there was some upward pressure from housing, following a rise in house depreciation.

RPIX inflation, which is the all items RPI excluding mortgage interest rates was 5.1% in May down from 5.4% in April.

It is widely expected that inflation will continue to fall and interest rates to be held steady. The only downside is that RPI inflation is still very high, and as this is used in some areas of pay bargaining, may lead to higher wages and help to fuel inflation later in the year.

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