As expected by economists, inflation eases to 3.4% in the year to May from April’s 3.5%. This figure has been confirmed by the Office for National Statistics (ONS) a day ahead of the Bank of England’s next base rate review.
Inflation eases to 3.4%
After the Consumer Prices Index (CPI) reading of 3.5% in the year to April had been released, the ONS confirmed the figure had been overestimated by 0.1% due to a car tax data error. As the official figure had already been released, the ONS decided to let the original reading stand at 3.5%. The correction of this error has been accounted for in the current reading.
The biggest downward contribution to May’s 3.4% inflation rate figure was due to a drop in airfares and fuel prices. Airfares dropped sharply, which has been attributed to the fact that the Easter holidays were later this year. This caused a spike in prices in April that have now fallen again. Fuel prices have decreased with the average price of petrol dropping by 2.1p/litre and diesel dropping by 2.6p/litre.
These factors were offset by an increase in food and furniture prices. Food inflation rose to 4.4% in May from 3.4% in April, putting more pressure on households. This is the highest figure since February 2024, when it hit 5%, and is the third consecutive increase. Chocolate, confectionery and ice cream prices all increased between April and May compared with a drop during the same period a year ago. Chocolate prices in particular have increased at a record rate. They rose by 17.7% in the year to May, which is the fastest increase since 2016. Meat prices have also risen during this period.
What will happen to interest rates?
This latest inflation rate figure has been released a day ahead of the next review for interest rates. The Bank of England (BoE) base rate currently sits at 4.25%. The current inflation rate sits much higher than the bank’s target of 2% and is still at its highest level in over a year. Inflation is expected to stay above 3% for the remainder of the year. Therefore, it’s likely that the base rate will be kept at the same level.
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