CPI shows improvement in May

Inflation decreased a bit in May to just 3.4% after reaching a 17 month high, which was aided by the weak rise in the price of petrol and food.

The figure, which comes from the Office for National Statistics, makes May the seventh month in a row in which the CPI (consumer prices inflation) has been higher than the 2% target set by the Bank of England.

Despite this fact, economists believe that the decrease from April’s numbers will help reduce some of the pressure that the interest rate needs to increase.

The decline is largely attributed to the decrease in food prices during May, as well as the much slower rises in the price of tobacco, petrol, and alcohol when compared to May of 2009.

According to the Office for National Statistics, petrol prices rose about .3%, but inflation levels fell because the prices faced by motorists in 2009 were even more daunting.

Retail prices also fell, down .2% on a yearly comparison scale, although housing costs increased by 3.5%, which is the fastest rate of increase seen in the housing market since May of 2008.

Andrew Sentence, from the Monetary Policy Committee for the Bank of England, hinted this weekend that he would still vote for an interest rate increase by the close of 2010 if inflation does not start to show more improvement.

For the last 15 months the Bank of England has capped interest rates at .5% and Governor Mervyn King has stated that any rise above two percent has only been temporary which will recover along with the gradual recovery of the economy.