Money News
The Consumer Prices Index (CPI) measure of annual inflation - the Government's target prices measure - was 3.3% in May, up from 3.0% in April. That's the largest increase since the series was first compiled back in 1997. It also means Bank of England Governor, Mervyn King, will have to write a letter to the Chancellor explaining what action the Bank intends taking to control prices, given the latest number is more than 1% above the Government's 2% target.
The worse-than-expected data (analysts had been looking for 3.2%) came from large upward pressures from food and non-alcoholic beverages, mainly meat and vegetable prices which rose this year but fell a year ago. This effect was partially offset by fruit prices rising, but by less than a year ago.
There were further large upward pressures from housing and household services due to gas and electricity bills, which were unchanged this year but fell a year ago, and heating oil prices, which rose this year but fell a year ago in part reflecting the rise in the price of crude oil this year.
Meanwhile, the wider Retail Prices Index (RPI) measure saw inflation rise to 4.3%, up from 4.2% in April - the main factors affecting the CPI also impacting the RPI.
However, there was a large downward contribution from housing. The effect came mainly from mortgage interest payments as lenders passed on April's quarter point decrease in the bank rate and, to a lesser extent, from house depreciation. Both mortgage interest payments and depreciation are excluded from the CPI.
17 June 2008 © Moneyextra.com
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