Inflation – the worst may be over
BUSINESS leaders in the West Midlands have welcomed a drop in inflation and claimed the move will ease pressure on calls for an increase in interest rates.
The latest Customer Price Index shows inflation being pegged back from 3.7% to 3.4%, still way above Government targets of 2% but nevertheless heading in the right direction.
Birmingham Chamber of Commerce and Industry policy adviser Will Rogers said: “The decline was driven by a fall in food prices on the month, as well as slower rises in the price of petrol, alcohol and tobacco than the same month last year.”
The Office of National Statistics said average petrol prices rose 0.3p to a record 120.5p in May, but overall inflation fell because motorists were hit by even steeper price hikes a year earlier.
Mr Rogers added: “While there is growing pressure to raise rates to counter the inflationary effect of the weaker pound, today’s figure indicates that the long-term outlook for inflation is subdued.”
He said that while inflation remained at its current level the chamber would be urging the new coalition Government to do all it could to support the private sector.
He said he was hoping measures introduced at next week’s emergency Budget would be sympathetic to the needs of business.
The CBI said it thought inflation may now have peaked and the level would decline to around 2% by this time next year.
Ian McCafferty, CBI chief economic adviser, said: “UK inflation has started to come down in line with our latest economic forecast and we think that the peak is likely to have passed.
“The surprisingly high inflation figures over recent months prompted some concern about the persistence of underlying inflationary pressure, and household perceptions of inflation have picked up in response.”
“However, core measures of inflation all fell back in May, and inflation should come down further in the months ahead and fall below the 2% target by this time next year,” he added.
