Mortgage News
Inflation eases to 3.4% in May
The consumer price index (CPI) of inflation eased in May to 3.4%, down from 3.7% in April, according to the Office for National Statistics (ONS).
Lower oil prices and last year’s hike in tobacco and alcohol prices contributed to the fall.
However, inflation is still above the Bank of England’s official 2% target, requiring Bank of England governor Mervyn King to write an open letter to Chancellor George Osborne.
The ONS said the only upward pressure on CPI came from household and household services.
The retail price index (RPI) – a wider measure of inflation used for wage negotiations – fell to 5.1% in the year to May, down from 5.3% in April. The ONS attributed the decrease to the same factors which affected CPI.
The inflation figures will ease concern amongst rate setters at the Bank of England after the CPI hit a 17-month high in April. Some analysts speculate had inflation not fallen this month markets would have braced for an earlier-than-expected rise in interest rates.
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Last week, the Bank of England’s Monetary Policy Committee (MPC) held interest rates at their historic low of 0.5%.
King has previously said CPI should fall back to its target level within a year as a sluggish recovery exerts downward pressure on prices.
However, further inflationary pressure could be on the cards if Chancellor George Osborne increase VAT to 20% in next week’s emergency Budget.