Falling Air Fares, Car Prices Pull U.K. Inflation Down
Cheaper air travel and car prices pulled down U.K. inflation to the Bank of England’s target level last month.
(Bloomberg) --
Cheaper air travel and car prices pulled down U.K. inflation to the Bank of England’s target level last month.
While the slowdown to 2% from 2.1% partly reflects the unwinding of Easter timing effects, economists see the downward trend continuing. Core inflation also slowed -- to the weakest in more than two years -- and factory output-price growth weakened.
The figures come a day before the BOE’s latest policy decision. As many central banks around the world shift into a more dovish mode, U.K. officials have been trying to push in the other direction, repeating a message that interest rates may have to rise more than the market currently anticipates if there’s a smooth Brexit.
Investors haven’t taken much heed given the continuing uncertainty over Britain’s exit from the European Union. Certainly in the short term, the latest inflation figures give policy makers breathing space to wait and keep interest rates on hold.
The BOE expects inflation to fall back below target this year. In May, it forecast that price growth would average 2.1% this quarter, easing to about 1.6% by late 2019.
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“Looking beyond today’s release, inflation looks set to stay below the BOE’s 2% target until the end of the year. Domestic cost pressures are building, but are still short of the levels needed to return inflation to target sustainably.”
--Dan Hanson
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Other figures Wednesday showed pipeline pressures remained subdued, with producer input prices rising just 1.3% from a year earlier, the weakest reading in three years. Cheaper oil drove the slowdown. Output prices gained 1.8%, also the least since 2016.
In the consumer-prices report, air fares, which surged in an Easter-related boost in April, fell 5.2% in May compared with a 10% increase a year earlier. Vehicle prices declined 0.3%, and there was also downward pressure from the cost of auto fuel, which rose less than it did in 2018.
Upward pressures came from rising prices for games, toys, hobbies, furniture and accommodation.
Inflation in the services sector, seen as a proxy for domestically generated inflation, slowed to 2.6% in May from 2.9% in April, while goods-price inflation edged up to 1.5%.
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