UK inflation unexpectedly holds at one-year low despite oil price rise

British consumer price inflation unexpectedly held at a one-year low last month, though rising oil prices suggest an increase could be on its way, according to official figures which keep a Bank of England rate rise in view.

Consumer price inflation held at an annual rate of 2.4 percent in May, its joint-lowest since March 2017, the Office for National Statistics said on Wednesday, below economists’ forecasts in a Reuters poll of a small rise to 2.5 percent.

The Bank of England said last month that it expected inflation to rise over the coming months due to higher oil prices and energy bills, before resuming a steady decline towards its 2 percent target.

Consumer spending – typically the biggest driver of British economic growth – has been heavily squeezed over the past year by inflation above the BoE’s 2 percent target.

Wednesday’s data suggest a rise in inflation could well be on its way. Fuel prices increased by the biggest monthly amount since January 2011, up 3.8 percent.

“Recent large rises in the cost of crude oil have fed through to prices paid by consumers at the pump,” ONS statistician Mike Hardie said.

However, this increase was offset by a drop in the cost of computer games – which are typically volatile – and smaller rises in energy bills than a year earlier.

Inflation hit a five-year high of 3.1 percent in November, when the inflationary effect of the pound’s tumble after June 2016’s Brexit vote reached its peak.

The BoE raised its key interest rate for the first time since before the 2008 financial crisis in November, but weak first-quarter growth caused it to postpone a rate rise which had been widely expected for May. Now most economists polled by Reuters expect a move in August, though soft April data on wages and industrial output have caused some to have doubts.

The ONS figures suggested a sharp rise in short-term pressures in the pipeline for consumer prices.

Among manufacturers, the cost of raw materials was 9.2 percent higher than in May 2017, boosted by a 2.8 percent increase on the month, the biggest monthly jump since October 2016. Economists polled by Reuters had expected input prices to rise by 7.6 percent.

Crude oil prices are now more than 40 percent higher than a year earlier.

Manufacturers increased the prices they charged by 2.9 percent, in line with forecasts and the biggest rise since December.

The ONS also said house prices in April rose by an annual 3.9 percent across the United Kingdom as a whole compared with 4.2 percent in March, the weakest increase in just over a year. Prices in London alone rose by 1.0 percent after edging down in March.

Source:CNBC