Inflation down – but by less than forecast

Link to the article: Channel 4 News

By Krishnan Guru-Murthy

Economists were expecting to see a sharp fall in inflation today, but that did not happen.

Economists were expecting to see a sharp fall in inflation today, but that didn't happen.

The headline rate of Retail Prices Index (RPI) inflation, which includes mortgage interest payments, rose to minus 1.1 per cent in May from minus 1.2 per cent in April, according to the Office for National Statistics - that's partly because of a surprise increase in house prices.

The consumer prices index - which doesn't include housing - rose 2.2 per cent, that's 0.1 per cent below last month's figure.

The figures showed food prices rising by less than a year ago in May, while electricity bills fell this year compared with unchanged prices 12 months earlier. But this was offset by price hikes for alcohol and tobacco over the month following.

And the weaker pound is also pushing up import prices, with DVDs and television prices rising this year compared with falling prices a year ago, ONS statisticians indicated.

The CPI measure has now been above target for 20 months, although, according to the Bank of England's forecasts, it is set to fall to 1 per cent or lower later this year as the recession bears down on prices.

Does this mean inflation is more persistent than we thought?

Krishnan Guru-Murthy talks to Karen Ward, a UK Economist at HSBC.