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Inflation predicted to have slowed after discounts buoyed economy Inflation predicted to have slowed after discounts buoyed economy
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Economists are predicting that supermarket discounts and cheaper airfares helped inflation ease back in May, ahead of the latest prices data, released on Tuesday.Economists are predicting that supermarket discounts and cheaper airfares helped inflation ease back in May, ahead of the latest prices data, released on Tuesday.
The consumer price index measure of inflation is expected to drop to 1.7% in May from 1.8% the month before, according to the consensus in a Reuters poll of economists. Some see price pressures easing off even further, with inflation down to 1.6%, matching a four-and-a-half year low reached in March.The consumer price index measure of inflation is expected to drop to 1.7% in May from 1.8% the month before, according to the consensus in a Reuters poll of economists. Some see price pressures easing off even further, with inflation down to 1.6%, matching a four-and-a-half year low reached in March.
The forecast is for the retail price index (RPI) inflation measure, which includes housing costs, to hold at 2.5% when the Office for National Statistics releases the latest inflation data at 9.30am.The forecast is for the retail price index (RPI) inflation measure, which includes housing costs, to hold at 2.5% when the Office for National Statistics releases the latest inflation data at 9.30am.
Any upside surprises – with CPI inflation beating the 1.7% forecast – will intensify speculation that the Bank of England will raise interest rates before the end of this year from their record low of 0.5%.Any upside surprises – with CPI inflation beating the 1.7% forecast – will intensify speculation that the Bank of England will raise interest rates before the end of this year from their record low of 0.5%.
Markets are already pricing in such a move – which would be the first change to rates since 2009 and the first hike since 2007 – after the Bank of England governor, Mark Carney, warned them last week that a rise could come sooner than they expected.Markets are already pricing in such a move – which would be the first change to rates since 2009 and the first hike since 2007 – after the Bank of England governor, Mark Carney, warned them last week that a rise could come sooner than they expected.
But most economists expect a benign inflation number in the latest RPI. "Consumer price inflation is expected to have edged down to 1.7% in May, primarily due to the unwinding of the hike in transport and some tourism-related costs that occurred in April due to the later Easter.But most economists expect a benign inflation number in the latest RPI. "Consumer price inflation is expected to have edged down to 1.7% in May, primarily due to the unwinding of the hike in transport and some tourism-related costs that occurred in April due to the later Easter.
"Muted food prices and still appreciable discounting by retailers are likely to have helped keep inflation down in May," said Howard Archer, economist at IHS Global Insight."Muted food prices and still appreciable discounting by retailers are likely to have helped keep inflation down in May," said Howard Archer, economist at IHS Global Insight.
Alan Clarke, economist at Scotiabank, points to falling airfares and to a supermarket price war keeping a lid on price rises in May. "In particular, Morrison's cut the price of 1,200 goods by an average of 17% and Tesco slashed a variety of food prices," he says, forecasting headline CPI inflation will ease to 1.6% from 1.8% in April. Alan Clarke, economist at Scotiabank, points to falling airfares and to a supermarket price war keeping a lid on price rises in May. "In particular, Morrisons cut the price of 1,200 goods by an average of 17% and Tesco slashed a variety of food prices," he says, forecasting headline CPI inflation will ease to 1.6% from 1.8% in April.
Although inflation is back below the Bank's 2% target, from a peak of 5.2% in 2011, it continues to outstrip average wage rises. Annual pay growth during February to April was just 0.9% meaning wages fell in real terms.Although inflation is back below the Bank's 2% target, from a peak of 5.2% in 2011, it continues to outstrip average wage rises. Annual pay growth during February to April was just 0.9% meaning wages fell in real terms.
Looking ahead, some economists see inflation picking up back towards the 2% target. But others say it could come down further.Looking ahead, some economists see inflation picking up back towards the 2% target. But others say it could come down further.
The thinktank Capital Economics said: "While most forecasters expect CPI inflation to rise back towards the 2% target this year, we still think that a combination of stable energy prices, falling import prices and recovering productivity could mean that it falls to as low as 1% before the end of the year."The thinktank Capital Economics said: "While most forecasters expect CPI inflation to rise back towards the 2% target this year, we still think that a combination of stable energy prices, falling import prices and recovering productivity could mean that it falls to as low as 1% before the end of the year."