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UK inflation turns positive in May

Inflation

Transport costs helped the UK's inflation rate turn positive in May after one month of negative inflation.

Inflation, as measured by Consumer Prices Index (CPI), rose to 0.1% in May, up from -0.1% in April.

The biggest contribution to the rise came from transport, notably air fares, the Office for National Statistics said.

In April, CPI inflation turned negative for the first time since 1960, mainly due to a drop in air and sea fares.

ONS statistician Philip Gooding said: "Last month CPI turned negative, mainly because of falling transport fares due to the timing of Easter. This month, that fall has been reversed."

He added that the falls in food and fuel costs over the past year "have eased this month, helping to push inflation up".

While the prices of food and fuel rose in May from the previous month, the prices were still lower than a year earlier.

However, while the overall effect of food and fuel on CPI inflation pulled the rate down by about 0.5 percentage points in May, this was less pronounced than the month before when the prices had a negative effect of 0.7 percentage points.

'Marginal and fleeting'

Ben Brettell, senior economist at Hargreaves Lansdown, said that "seasonal factors surrounding the timing of the Easter holiday were at work in last month's figures - CPI inflation was pushed down by cheaper air fares relative to last year. Now those factors have dropped out of the calculation we are back where we started."

Negative inflation "proved both marginal and fleeting", said Howard Archer, chief UK and European economist at IHS Global Insight.

"We doubt that deflation will recur in the UK, although it cannot be completely ruled out if oil prices take a renewed appreciable downward lurch," he said.

Nevertheless, inflationary pressures "remained limited in May and core inflation was still only 0.9% after hitting a 14-year low of 0.8% in April," Mr Archer added.

Martin Beck, senior economic advisor to the EY ITEM Club, said that CPI inflation measure could briefly turn negative again during the summer.

"Petrol prices, having rallied earlier in the year, have stabilised lately, while today's producer prices data indicates that there are no inflationary pressures coming along the supply chain," Mr Beck said.

In May Retail Prices Index (RPI) inflation, a separate measure which includes housing costs, was 1%, up from 0.9% in April.

Bank of England governor Mark Carney has said he expects inflation to remain low in the short term.
The Bank expects near-zero inflation to help the UK economy by boosting the spending power of households.

'Remain vigilant'

Chancellor George Osborne said "a powerful mix of low prices and rising wages" was "good news for working people and family budgets".

Nevertheless, he said: "Of course the job is not done and we will continue to remain vigilant to all risks, particularly when the global economic situation is so uncertain."

Labour's shadow chief secretary to the Treasury, Shabana Mahmood, said that despite the low level of inflation, "many households are still struggling to pay the bills".
"We need stronger action now to raise productivity to deliver sustainable growth and rising living standards," she said.

Source : BBC
http://www.bbc.co.uk/news/business-33147660

16 June 2015

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