Inflation falls to 2% influenced by falling fares and car prices

The Consumer Prices Index (CPI) 12-month rate was 2.0% in May 2019, down from 2.1% in April 2019.

Falling air fares and car prices contributed to a modest fall in the rate of inflation in May, with the consumer price index hitting the Bank of England’s 2% target.

The timing of Easter, which fell in April this year, meant that fares for transport services fell in May, the Office for National Statistics (ONS) said.

Air fares declined by 5.2% compared to a 10% increase in the same month in 2018.

Car prices, which fell by 0.3%, and a moderate 4.2p per litre growth in the cost of petrol also contributed some downward pressure, the ONS noted.

The 2% inflation figure means that price growth is now exactly on the Bank of England’s target, and comes hours before the central bank will announce its latest interest rates decision.

“Weak inflation takes the pressure off the Bank of England to raise rates but don’t expect cuts any time soon”, says Yael Selfin, Chief Economist at KPMG UK:

“Despite the moderating pace of inflation, thanks partly to a late Easter, the Bank of England is unlikely to follow the change of heart of other major central banks. The MPC is expected to keep its sights on the next, albeit delayed, interest rates rise, rather than contemplate an easing at this stage.

”Assuming no major Brexit-related disruptions or other external shocks, we expect CPI inflation to remain slightly below the MPC target of 2% over the medium term, leaving scope for the MPC to keep rates unchanged until late next year.”

 

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