Inflation Rates Drop To Two-And-A-Year Low

The rate of inflation in the UK fell to a two-and-a-half year low last month, as a result of slowing fuel and food prices.

The Consumer Prices Index (CPI) measure fell to 2.8% in May from 3% in April, the Office for National Statistics (ONS) said.

The Retail Prices Index (RPI) measure fell to 3.1% from 3.5% in March.

Due to the waning impact of the VAT rise in 2011 and falling energy, food and commodity prices inflation has fallen from 5.2% last September.

The fall in inflation was unexpected; as the consensus among economists was that the rate would be unchanged in May. However, analysts are now saying prices were likely to fall further in the coming months.

"Expect further falls in inflation as energy bills rise less over the summer versus last year," said George Buckley at Deutsche Bank.

"The fall in CPI inflation to 2.8% in May increases the likelihood at the margin of more quantitative easing (QE)... We expect £50bn with a sizable risk of a 25 basis point rate cut to boot."

Philip Shaw at Investec agreed, saying: "The inflation measures have all come in below market expectations and another drop in the targeted measure helps the case for more quantitative easing."

The May inflation figures show that consumers are starting to benefit from a fall in recent months in the cost of crude oil.


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