Inflation falls to 3.4%
Price inflation in the UK, as measured by the Consumer Prices Index (CPI) has fallen to 3.4% for the year to May. This is a fall from 3.7% and a bigger fall than expected.
CPI inflation was forecast to be at 3.5% for the year to May. The slightly bigger than expected fall has hit sterling, which lost ground against the dollar and euro on the news.
The Retail Prices Index (RPI) measure of inflation, which includes housing costs, also fell in May. It now stands at 5.1%, down from 5.4% the previous month.
Whilst inflation still remains above the Government target, this new data should ease some concerns about UK inflation and a need to increase interest rates to control rising inflation.
At the weekend we heard comments from Andrew Sentance, a member of the Bank of England monetary policy committee. He suggested that the Bank might need to raise interest rates soon due to the persistent nature of price inflation.
The Bank of England continues to believe that price inflation will fall back to the 2% target in the second half of this year. This new data for the year to May could well be the start of this process, or it could represent a mere respite in recently rising inflation figures.