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Inflation static as transport costs rise but food and clothing fall

Published 14/06/2016

CPI was 0.3% in May, unchanged from April
CPI was 0.3% in May, unchanged from April

Inflation was unchanged last month after a rise in the cost of hotel bills and transport was offset by falling clothes and food prices, according to official figures.

The Office for National Statistics (ONS) said Consumer Price Index (CPI) inflation was 0.3% in May, the same rate as April when it fell for the first time since last September.

Transport costs climbed 0.9% last month, as the price of diesel stepped up 3p per litre this year compared to 1.5p in 2015. Rising sea fares also had an upward impact, picking up slightly in 2016 after falling a year ago.

The cost of restaurants and hotel bookings were also on the rise, climbing 0.5% in May compared with 0.2% in the same month a year ago. The price of an overnight stay in a hotel rose more in May than it did last year.

But these rising prices were pegged back overall, as shoppers saw food and non-alcoholic beverages drop 0.4% between April and May, with the cost of vegetable and confectionery edging down.

Clothing and footwear price tags were also easing back, down 0.2% between April and May, with a small impact coming from the falling cost of children's clothes.

The price of petrol rose by 2.8p per litre between April and May to 108.7p a litre.

Howard Archer, chief European and UK economist for IHS Economics, said the rising oil price also put upward pressure on inflation.

"There was a modest upward impact on inflation in May from higher petrol prices as a result of oil prices reaching 2016 highs during the month.

"However, the upward impact of this was limited by the fact that oil prices also firmed in May 2015."

Economists were expecting CPI to bounce back last month, but remain below the 15-month high of 0.5% seen in March.

The ONS said that the Retail Prices Index (RPI) - a separate measure of inflation, which includes housing costs - rose to 1.4% in May from 1.3% in April.

David Kern, chief economist of British Chamber of Commerce, said the Bank of England will be in no hurry to raise interest rates with inflation still sitting well below the Government's target.

"While it is likely that price growth will slowly edge up through the rest of this year, we expect that inflation will remain below the 2% target until well into 2017. Against this background, any thought of raising interest rates will be firmly off the agenda."

It comes as the Bank continues to sound alarm bells over a potential British exit from the European Union, warning last month that it could "materially" hit growth and trigger a "technical recession".

The Bank's Monetary Policy Committee (MPC) is expected to vote unanimously to keep rates on hold at 0.5% when it publishes its minutes on Thursday.

UK economic growth slowed to 0.4% in the first three months of 2016, down from 0.6% in the fourth quarter of last year, following an industrial sector slump.

Markets have also proved volatile in recent sessions, with t he FTSE 100 Index tumbling by 1.9% on Friday as investors dived into safe havens amid heightened concerns over slowing global growth and the impact of a Brexit on the economy.

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