UK inflation falls to 2.8%

Tuesday, 19th June, 2012

The Office for National Statistics has revealed the annual inflation rate decreased in May, as consumer price index inflation fell to 2.8% from 3%, fuelled by a drop in petrol prices.

Motor fuels and the food & non-alcoholic beverages sectors were the biggest downward pressures on CPI inflation, while the biggest upward pressure came from air and sea transport. Retail price index inflation dropped to 3.1% from 3.5% in April. Vicky Redwood, chief UK economist at Capital Economics, says as the rate falls closer to the Bank of England’s target, further quantitative easing may be on the horizon. She says: “The further fall in UK inflation in May is a nice surprise, given that we and the consensus had expected it to hold broadly steady.

The fall from 3% to 2.8% was driven by a drop in petrol prices and a fall in food price inflation – perhaps as retailers passed on previous falls in agricultural prices. “Admittedly, core inflation nudged up from 2.1% to 2.2%. But this mainly reflects a brief period of sharp discounting this time last year and we had thought it would pick up more sharply than this.

Headline inflation will probably stay around this level in June, but it should then start to fall more quickly and we still think it could be below 2% before the end of the year.”