Member Article

Inflation drops to 2.8% in May

Inflation fell last month to a two and a half year low due to a slowdown in food and fuel prices.

In May the Consumer Price Index(CPI) fell by 2.8% from 3% in April, while the Retail Price Index fell to 3.1% from 3.5% in March.

The fall in inflation was attributed to the waning impact of the VAT rise in 2011, and falling energy, food and commodity prices. Prices are expected to fall further over the coming months.

The reported figures represent the first time the rate has fallen within Bank of England upper taget boundaries since 2009.

Commenting on the figures, Richard Driver an analyst for Caxton FX said: “Lower food and fuel prices brought the inflation rate down last month and price pressures are set to ease further this year.

“This may be welcomed by recession-hit consumers but it is unlikely to translate into increased spending, since UK wages are shrinking at a similar pace.

“Lower domestic inflation obviously strengthens the case for extending the Bank of England’s quantitative easing programme, though alternative policy options as indicated at last week’s Mansion House speech seem more likely to be utilised in the short-term.”

This was posted in Bdaily's Members' News section by Ruth Mitchell .