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Store wars see inflation rate dive during May

File photo dated 06/03/14 of the Bank of England in London as inflation should remain at or below the Bank of England's 2% target for a sixth month in a row when official figures for May are published today. PRESS ASSOCIATION Photo. Issue date: Tuesday June 17, 2014. The Consumer Prices Index (CPI) measure of inflation is predicted to have slipped to 1.7% after rising to 1.8% in April. Higher transport prices due to the timing of Easter drove prices higher that month but the rate is predicted to have resumed a downward trend that started last summer. See PA story ECONOMY Inflation. Photo credit should read: Gareth Fuller/PA Wire

File photo dated 06/03/14 of the Bank of England in London as inflation should remain at or below the Bank of England's 2% target for a sixth month in a row when official figures for May are published today. PRESS ASSOCIATION Photo. Issue date: Tuesday June 17, 2014. The Consumer Prices Index (CPI) measure of inflation is predicted to have slipped to 1.7% after rising to 1.8% in April. Higher transport prices due to the timing of Easter drove prices higher that month but the rate is predicted to have resumed a downward trend that started last summer. See PA story ECONOMY Inflation. Photo credit should read: Gareth Fuller/PA Wire

Inflation fell sharply to a four-and-a-half-year low in May as supermarket price wars pushed food and drink costs to their steepest decline in nearly a decade.

The Consumer Prices Index (CPI) measure of inflation dropped more heavily than expected to 1.5 per cent from 1.8 per cent the month before, the Office for National Statistics (ONS) said.

CPI equalled the rate seen in October 2009. It was last lower, at 1.1 per cent in September 2009.

The latest figures mark the sixth month in a row when the rate has been at or below the Bank of England’s two per cent target, the first time this has happened since 2009.

Air fares, which were lower due to the timing of Easter, had a significant downward effect, while petrol pulled in the other direction as pump prices crept up.

Food and non-alcoholic beverages fell by 0.6 per cent year on year, the sharpest fall since October 2004. The last time there was a decline was in March 2006.

Supermarket staples such as bread and cereals, meat, vegetables and soft drinks led the drop.

Tesco, Asda, Sainsbury’s and Morrisons have been battling on price as they face an increasing threat from discounters Aldi and Lidl gnawing at their market share.

Meanwhile, lower womenswear prices saw clothing and footwear record negative inflation for the first time since April last year.

Despite the drop in inflation, it remains well above the rate of wage increases, which have fallen to 0.7 per cent meaning real-terms pay is still stalling.

A separate measure of inflation, the Retail Prices Index (RPI) which includes housing costs, fell to 2.4 per cent from 2.5 the month before.

Prime Minister David Cameron tweeted: “Good news that inflation is at its lowest for five years - it means more stability and financial security for everyone.”

The figures come days after Bank of England governor Mark Carney signalled that the first hike in interest rates could come sooner than thought, prompting a number of forecasters to bring forward expectations of a rise to this autumn.

 

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