Data from the Office for National Statistics (ONS) shows consumer price inflation returned to the Bank of England’s target of 2% last month for the first time in almost three years.
The Consumer Prices Index (CPI) rose by 2.0% in the 12 months to May, easing from 2.3% in April.
The largest downward contribution to the monthly change came from food and non-alcoholic beverages, with prices now rising by just 1.7% year-on-year, down from 2.9% in April and a high of 19.2% in March last year. Annual rates eased in 9 of the 11 food and non-alcoholic beverages classes, with the exceptions being oils and fats, and milk, cheese and eggs.
Meanwhile, the largest upward contribution to the overall inflation figure came from motor fuels, with prices rising this year.
The data comes ahead of a Bank of England decision on interest rates tomorrow. Despite the improving inflation trend, the Bank is still expected to hold the rate at 5.25% for the seventh meeting in a row. Markets are not betting on a cut until August.
“While headline inflation is back to normal levels, domestically-driven services-price inflation remains elevated,” said James Smith, research director at the Resolution Foundation think tank.
“This inflation will worry the Bank of England, and may give pause for thought when it comes to cutting interest rates.”
However, David Bharier, head of research at lobby group the British Chambers of Commerce, said May’s figure was “a further sign that the UK is exiting the inflation crisis which began in late 2020”. He stated that this provided “additional weight for an interest rate cut in the coming months”.
Meanwhile, Karen Betts, CEO of The Food and Drink Federation (FDF), commented: “It’s encouraging to see food and non-alcoholic drink price inflation continue to fall, which is welcome respite for households and important for business recovery.
“However, as politicians campaign across the country, we can’t stress enough the centrality of good food and drink to everyone’s lives and that the resilience of our sector isn’t a given. With agricultural commodity prices and energy costs rising once again, parts of the food and drink supply chain remain vulnerable, and there’s little slack to cope with the impact of extreme weather events on harvests or further rises in shipping costs.
“It’s crucial that the next government works closely with our sector to ensure sufficient investment to guarantee the UK’s food security alongside economic growth. With the right incentives and the right regulation, our sector – the largest manufacturing sector in the country – should be a powerhouse for science and innovation, good jobs and community prosperity.”
NAM Implications:
- With no guarantees…
- …especially given that domestically-driven services-price inflation remains elevated.
- i.e. food suppliers and retailers have contributed to inflation reduction…
- …with some casualties (amalgamations or going bust)…
- …and more to come.
