Inflation as measured by the Consumer Prices Index (CPI) fell to 1.5 per cent in May, its lowest level in four-and-a-half years and the sixth consecutive month that inflation has been below the Bank of England’s 2 per cent target.
The fall was mainly due to lower air fares and a decrease in the cost of food and non-alcoholic beverages, which fell by 0.6 per cent, year-on-year during the month, the sharpest drop in a decade. The two factors combined shaved more than 0.25 percentage points off headline CPI.
Meanwhile, the rate of inflation, as measured by the Retail Prices Index (RPI), which is no longer classed as an official statistic by the ONS but is used to calculate pay deals and fare increases, also fell, to 2.4 per cent in May from 2.5 per cent in April.
According to the Office for National Statistics (ONS), which published the figures today (June 17), the timing of Easter, in April this year, is likely to have had an impact on the data, particularly on travel costs, which rose sharply to coincide with the holiday.
However, prices are still rising faster than the rate of earnings, which only rose by 0.7 per cent in the three months to the end of April, compared with 1.9 per cent growth in the three months to March.
Despite the fall in inflation, it is still unlikely that interest rates will rise before the end of the year, as inflation is likely to drift upwards again over the coming months and the Bank will look at the bigger picture rather than at snapshots. It may even mean that rates stay where they are until early next year.