Inflation falls to 2.8% in May

worldtraveller

British inflation eased unexpectedly in May to its lowest in two and a half years due to slower price rises for food and fuel, official data showed on Tuesday, giving the Bank of England more leeway to inject additional cash into the economy.

The ONS said that consumer price inflation fell to 2.8 percent on the year from 3 percent in April, confounding economists' forecasts for an unchanged reading.

Telegraph.co.uk

The key points from this release are:

• CPI annual inflation stands at 2.8 per cent in May 2012, down from 3.0 per cent in April. The largest downward pressures to the change in CPI annual inflation came from motor fuels and food & non-alcoholic beverages. The largest upward pressures to the change in CPI annual inflation came from air and sea transport, where the timing of Easter had a significant impact on the April to May movement. The CPI stands at 122.8 in May 2012 based on 2005 = 100

• RPI annual inflation stands at 3.1 per cent in May 2012, down from 3.5 per cent in April. The largest downward pressures to this change came from petrol & oil and food. Partially offsetting these was an upward pressure from other travel costs which includes air transport. The RPI stands at 242.4 in May 2012 based on January 1987 = 100

ONS

angrypirate

Its ok, now that Osbourne is planning on injecting more cash into the economy, expect it to shoot back up to 4% by september.

Generali

angrypirate wrote: »

Its ok, now that Osbourne is planning on injecting more cash into the economy, expect it to shoot back up to 4% by september.

As the M4 measure of money supply has been falling by an average of £4,325,000,000 a month over the past 2 years, all this QE is just stabilising prices. Without it I reckon that deflation would have a pretty firm hold by now.

Don't forget that QE has a secondary impact: the BoE collects the coupons the Treasury pays and returns most of them as dividends to their shareholders, the UK Treasury. As the BoE owns about 1/3rd(?) of the Gilts in circulation, that's a lot of interest that taxpayers effectively don't have to find.

nollag2006

angrypirate wrote: »

Its ok, now that Osbourne is planning on injecting more cash into the economy, expect it to shoot back up to 4% by september.

Bookmarked for September

Could this be another addition to the 50% fall by Christmas 2009 hall of shame predictions?

On a

nollag2006

Falling inflation represents a great opportunity for the BOE to cut interest rates even further to underpin the recent round of house price rises.

Even the IMF is advocating this:
http://www.bbc.co.uk/news/business-18156489

purch

The largest downward pressures to this change came from petrol & oil and food.

In other words, the things that had been causing the upward pressure in previous months (things that are usually unaffected by monetary policy) reversed.

prowla

I don't know how they measure inflation - I go to the shops and see things cost more.

Generali

prowla wrote: »

I don't know how they measure inflation - I go to the shops and see things cost more.

Using the Household Survey, they (the ONS) work out what people spend their money on. Then they go out and find out how much those things cost this month.

Then they apply 'weightings', that is to say that the more money people spend on stuff on average, the greater the impact on inflation.

Once they've done all that, they calculate the level of prices in the economy. The change in the level of price gives inflation.

If inflation falls from 4% to 3% that doesn't mean prices are falling, it simply means that prices are rising more slowly than they were.

paulmapp8306

Yeh - that means my wage has only dropped by 2.8% this year - as for the 3rd year running there is no pay rise (public sector).

kabayiri

We used to have a notional 2% target for inflation. I remember this being pretty important to Gordon Brown when he was chancellor.

Have we a new revised target? Should people get used to 3% perhaps?

Masomnia

This means inflation is on target, doesn't it?