Inflation stays at 4.5%

• CPI remains at more than twice Bank’s 2% target • ‘Core’ inflation falls to 3.3% • Majority vote to leave interest rates unchanged Cheaper travel costs compensated for dearer food to keep the annual rate of inflation in the UK steady at 4.5% last month. Figures released by the Office for National Statistics showed that the annual increase in the cost of living as measured by the consumer prices index remained at more than double the Bank of England’s 2% target. The latest data for inflation was in line with City forecasts, although Threadneedle Street expects higher domestic fuel bills to push the annual rate above 5% over the coming months. A majority of members of the Bank’s nine-strong monetary policy committee have taken the view that the factors leading to the inflation overshoot are temporary and have voted to keep interest rates at 0.5%. The figures showed that so-called “core inflation”, which strips out food and energy, fell from 3.7% to 3.3% last month. Inflation using the retail prices index yardstick, which is used as the benchmark for many pay deals, remained unchanged at 5.2% in May. Hetal Mehta, UK economist at Daiwa, said: “While there was no upside surprise on the headline CPI figure, inflation still remains well over the Bank’s target and is likely to rise even further in the next couple of months as higher commodity prices feed through. Nevertheless, the current inflationary forces are largely temporary in nature, and a marked fall in January next year is expected once the VAT increase falls out of the calculations. “As such, we still think the Bank will look through the short-term spike. And the fact that core inflation fell to 3.3% will be reassuring to the Bank, and further diminishes the prospects of a rate increase this year.” Inflation Economics Bank of England Interest rates Larry Elliott guardian.co.uk

Posted by on June 14, 2011. Filed under News, Politics, World News. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.