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CPI resumes slide after Easter spike

by David Campbell on Jun 17, 2014 at 09:48

CPI resumes slide after Easter spike

Consumer price Inflation resumed its long-term slide in May, falling back to 1.5% after April’s brief Easter-related spike to 1.8%.

Emphasising the rebasing effect of the 2013 figures on this year’s relatively late Easter holiday, falls in transport costs, particularly air fares, were a large contributor to the fall.

Excluding April, CPI inflation has now been sliding for 12 months from a peak of 2.9% in June last year, against a wider backdrop of moderating resource prices and a relatively strong pound.

Output inflation also continued to moderate with core factory gate prices up 0.5% compared to 0.6% in the 12 months to April, in a demonstration of the weakness of pressure across the supply chain.

Capital Economics’ UK economist Samuel Tombs said that the continued weakness of inflation suggested that recent hawkishness from Bank of England policymakers may not be sustained.

‘We believe the MPC is likely to tread cautiously and raise interest rates only very gradually over the coming years,’ said Tombs.

‘It continues to look likely that CPI inflation will ease further, perhaps to as low as 1% by the end of the year. For a start, sterling's further appreciation points to a continued easing of core goods inflation over the rest of this year.

‘A combination of political pressure and recent sharp falls in wholesale prices should ensure that any rises in consumer energy bills later this year are much smaller than seen last winter. And while these downward influences on inflation will be temporary, we still believe there is considerable scope for productivity growth to pick up, keeping inflation low over the medium term.’

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