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ONS reports a fall in CPI and RPI

Inflation continued to fall last month as the CPI rate fell 0.2% to 2.8%

The significant decline in May was reinforced by a 0.4% fall in the RPI (Retail Prices Index) rate which includes housing costs, which is not at 3.1% compared with 3.5% in April.

The Office of National Statistics said lower fuel and soft drink prices has been key factors in the fall.

Inflation is now at its lowest rate since November 2009 but is still over the Government's 2%, which the Bank of England expects to meet by the end of 2013.

The largest downward pressures "came from motor fuels, food and non-alcoholic beverages," said the ONS.

Economists believe the fall will give the Bank of England more scope to stimulate growth in the economy throught its quantitative easing programme.

Dr Brian Sloan, chief economist at Greater Manchester Chamber of Commerce, said: “We are seeing inflationary pressures fall in supply chains as a result of weaker global demand influences on commodity and oil prices, so we expect further easing of inflation in the next few months.

"However consumer confidence on the demand side remains weak and all eyes will be looking towards retail sales figures, which will be released later this week, for signs that lower inflation is encouraging households to loosen their belts.”

Nida Ali, economic advisor to the Ernst & Young ITEM Club, said the CPI figures would come as a huge relief to the Bank of England's Monetary Policy Committee.

She said: "“The headline figure is lower than expected. Although petrol prices, which hadn't started falling at the time of the April figures, were always expected to exert a significant downward pressure on overall prices, we expected this to be offset by higher airfares.

“This data strengthens our conviction that inflation will come back towards the 2% target by the end of the year. This in turn should give the MPC full flexibility to react should the recovery falter and require more monetary stimulus.”

Source: Chris Barry – The Business Desk North West

19 June 2012
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