Sharp fall in annual rate of inflation

May 22, 2012
By

Inflation last month dropped to 3% – its lowest level for more than two years. The sharp fall from 3.5% raises the prospect that the Bank of England will be able to support the flagging economy by injecting more stimulus later this year.

The fall in the Consumer Prices Index (CPI) was caused by lower inflation for air and sea transport, clothing and alcohol, the Office for National Statistics (ONS) said.

Economists had been expecting a sizeable fall in inflation due to a spike in some prices in April last year which were not repeated this year.

The last time the CPI was at 3% was February 2010. CPI inflation peaked at 5.2% in September last year and has fallen sharply since then, apart from a surprise rise in March.

The ONS said that the timing of Easter was significant for April’s figures.

Inflation has now been above the Bank’s 2% target for almost two-and-a-half years. The Bank predicts it will remain above target for at least another year before falling to 1.6% by mid-2014.

Institute of Directors South West chairman Gerry Jones said: “Headline and core inflation are heading south. With money supply and wage growth weak, not to mention the euro crisis, this trend is likely to continue. Those worried about inflation are chasing shadows.”

 

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