Consumer prices rose 1.5 percent in May, the least since October 2009 and down from a rate of 1.8 percent in April, the Office for National Statistics said in London today. That compares with a median forecast of 1.7 percent in a Bloomberg News survey. Inflation has been at or below the BOE’s 2 percent target for six months, the longest stretch since 2009.
The figures buy time for Governor Mark Carney as a strengthening economy adds pressure on the central bank to end five years of emergency stimulus. Investors, who were pricing in a January interest-rate increase after Carney said last week that officials might have to tighten policy earlier than anticipated, today pared those bets, Sonia contracts show.
“Given the spare capacity in the economy and the prolonged squeeze on consumers’ purchasing power, the pricing power of retailers, manufacturers and services companies will likely remain limited for some time to come,” Howard Archer, an economist at IHS Global Insight in London, said before the data were released.
The pound fell against the dollar after the data and was trading at $1.6944 as of 9:32 a.m. London time, down 0.2 percent on the day. The yield on the benchmark 10-year U.K. government bond fell 1 basis point to 2.75 percent. Sonia contracts show investors are betting on a rate increase by February. Before Carney spoke on June 12, bets centered on the second quarter.
Consumer prices fell 0.1 percent from April. Pressure came from supermarket price wars that drove down the cost of food and non-alcoholic beverages. These goods dropped 0.6 percent on the year, the first annual decline since 2006 and the largest since October 2004.
Clothing prices also fell, as did air and sea transport costs after travel operators raised fares in the run-up to Easter in April. Air fares declined 3.2 percent on the month and sea transport plunged 9.9 percent.
Today’s report also showed that retail-price inflation, a measure used as a basis for the inflation-linked bond market, slowed to 2.4 percent, the lowest since December 2009, from 2.5 percent. Core inflation slowed to 1.6 percent from 2 percent.
In a separate report today, the ONS said factory input costs fell 0.9 percent in May from April. They dropped 5 percent compared with the same month in 2013.
Output prices at factories fell 0.1 percent on the month and rose 0.5 percent from a year earlier, according to the report. Core output prices were unchanged on the month.
Separately, the ONS said annual house-price inflation accelerated to 9.9 percent in April, the strongest since June 2010. They gained 2 percent on the month, the biggest monthly gain since January 2010. In London, price growth was 18.7 percent, the biggest gain since a record increase in July 2007.
In addition to helping support Carney’s case for keeping the benchmark interest rate at a record-low 0.5 percent, the slowdown in inflation over the past year is also easing a squeeze on households. That may give a lift to the economic recovery by helping to support consumer spending.
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