UK inflation rate falls to fresh four-year low


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Dan Mullan

The UK’s inflation rate fell to 0.5% in May, the second full month of the coronavirus lockdown, as most shops were shut by the pandemic.

The Consumer Prices Index (CPI) fell from 0.8% in April to the lowest level since June 2016, the Office for National Statistics (ONS) said.

Supermarkets were among the few shops allowed to open and food prices rose.

However, this was offset by a fall in clothing and footwear prices, as well as cheaper petrol, the ONS said.

Fuel prices declined by 16.7% in May – the biggest fall on record – while energy costs dropped 7%.

Clothing and footwear prices were down 3.1% amid heavy discounting during the lockdown.

“The growth in consumer prices again slowed to the lowest annual rate in four years,” said ONS deputy national statistician for economic statistics Jonathan Athow.

“The cost of games and toys fell back from last month’s rises, while there was a continued drop in prices at the pump in May, following the huge crude price falls seen in recent months.

“Outside these areas, we are seeing few significant changes to the prices in the shops.”

The ONS admitted that it had difficulty compiling inflation statistics for May, since many areas of the economy were completely shut down.

For instance, inflation figures for holidays had had to be “imputed”, it said.

CPI remains below the Bank of England’s 2% target for inflation.

Inflation is one of the main factors that the Bank of England’s Monetary Policy Committee (MPC) considers when setting the “base rate”. That influences what interest rates banks can charge people to borrow money, or what they pay on their savings.

Interest rates are currently at 0.1%, the lowest level in the Bank’s 325-year history.

“May’s further fall in inflation is probably only the beginnings of a prolonged period of very soft price pressure,” said Paul Dales, chief UK economist at Capital Economics.

He added that MPC members were expected to opt for more stimulus measures to boost the economy at their policy meeting on Thursday.

What is inflation?

Inflation is the rate at which the prices for goods and services increase.

It’s one of the key measures of financial wellbeing because it affects what consumers can buy for their money. If there is inflation, money doesn’t go as far.

It’s expressed as a percentage increase or decrease in prices over time. For example, if the inflation rate for the cost of a litre of petrol is 2% a year, motorists need to spend 2% more at the pump than 12 months earlier.

And if wages don’t keep up with inflation, purchasing power and the standard of living falls.



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