No deflation this month

No deflation this monthThe UK has avoided another month of deflation, with the news that price inflation turned positive in the year to May.

Price inflation as measured by Consumer Prices Index (CPI), rose to 0.1% in May.

It was -0.1% in April, the first period of deflation since 1960.

This time around, the biggest contribution to the inflation was transport, most notably air fares, according to the Office for National Statistics (ONS).

According to the ONS:

“Last month CPI turned negative, mainly because of falling transport fares due to the timing of Easter. This month, that fall has been reversed.”

They added that falling food and fuel costs of the past year eased in May, which helped to push up price inflation.

Food and fuel prices pulled inflation down by 0.5% in May, compared to 0.7% in April.

Core inflation, which excludes some of the more volatile goods and services included in the Consumer Prices Index measure of price inflation, was 0.9% in May, up slightly from 0.8% in April.

We remain in a very low inflation environment, which suggests interest rates will remain lower for longer.

Another bout of deflation cannot be ruled out entirely; if oil prices took another tumble, we could experience more deflation later this year.

Economists are predicting inflation will continue to languish at around zero for the rest of this summer, before rising back towards the Bank of England inflation target of 2% starting this autumn.


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