UK Inflation Down to 4-1/2 Year Low


The UK annual inflation rate slowed to 1.5 percent in May of 2014 from 1.8 percent in the previous month, due to a fall in food prices and cost for air and sea fares. It is the lowest rate since October of 2009.

Falls in transport services costs, notably air fares, provided the largest contribution to the decrease in the rate. Other large downward effects came from the food and non-alcoholic drinks and clothing sectors. The largest offsetting upward effects came from motor fuels and recreation and culture. 

Core CPI, which excludes food costs and other items rose 1.6 percent yoy, lower than 2 percent in the previous month. The harmonized CPI grew by 1.4 percent in the year to May of 2014, down from 1.6 percent in April. 

The CPI fell by 0.1 percent between April and May of 2014. Transport prices dropped by 0.7 percent due to air transport, with average fares falling by 3.2 percent on the month. There was also a smaller downward effect from sea transport. Partially offsetting these movements was a large upward contribution from motor fuels with prices, overall, rising this year. Petrol prices rose by 0.4 pence per litre between April and May this year (to stand at around £1.29 per litre) and diesel prices rose by 0.3 pence per litre. Meanwhile, cost of food and non-alcoholic beverages fell 1.2 percent between April and May. The downward effect came from a variety of product categories, most notably bread and cereals, meat, vegetables and soft drinks. Prices of clothing and footwear decreased 0.1 percent, mainly due to garments, particularly women’s outerwear.

In contrast, upward contributions came from cost of recreation and culture (0.4 percent), mainly computer games and alcohol and tobacco prices (1.5 percent), mainly wine. 

ONS | Joana Taborda | joana.taborda@tradingeconomics.com
6/17/2014 9:54:44 AM