May’s inflation reverses April’s negative trend

The UK Consumer Prices Index (CPI) inflation turned positive in May, rising to 0.1 per cent, according to data issued today from the Office for National Statistics (ONS).

The result is marks a reversal of March and April where the CPI inflation dipped to 0 per cent and -0.1 per cent respectively.

When April inflation fell to -0.1 per cent it was the first time in 55 years that UK CPI had moved into negative territory.

May’s positive 0.1 per cent inflation was largely due to rising transport costs - primarily air travel - as well as fuel and food prices, the ONS said.

Liz Cameron, Chief Executive of Scottish Chambers of Commerce, said: “Inflation remains at very low levels but is now no longer in a deflationary position. Fuel prices have begun to rise at the pumps contributing to a 0.6 per cent increase in transport prices between April and May but although the price of oil has risen since the beginning of the year, it remains 40 per cent below where it was this time last year.

“We would fully expect inflation to begin its journey back towards the UK Government’s 2 per cent target as the year goes on and as elements such as the differential between this year’s and last year’s oil prices continue to become less of a factor. Nonetheless the Bank of England must maintain a steady hand on interest rates and keep these at their historic low at least for the time being.”

Also commenting on today’s data, Dr Esmond Birnie, PwC chief economist in Scotland and Northern Ireland said: “As was expected, today’s monthly inflation figures from ONS indicate a slight upward trend in prices, taking May to 0.1 per cent and back to positive territory.

“This contrasted to a -0.1 per cent decline or “deflation” in the year to April and two months of flat prices before that. Rising air fares, food and motor fuels were the main upward pressures.

“All this suggests that the period of zero or even negative inflation will be a brief interlude albeit one that contributed to maintaining the UK economic recovery through boosting real living standards and helping to consolidate recovery.

“The Bank of England Governor has said he expects short-term interest rates to remain low and that’s further good news for households and borrowers across Scotland.”