Current Inflation Rate – May 2009

A decline in the price of food and non-alcoholic drinks led to a further slow down in the Consumer Price Index (CPI) measure of inflation which increased by just 2.2% in May 2009 compared to 2.3% the previous month, according to the Office of National Statistics.

Thanks to low mortgage interest rate payments the Retail Price Index (RPI) stayed in the deflation zone at -1.1% for the 12 months to May, slightly higher than the -1.2% recorded in April.

The major elements creating this slight increase are a smaller decrease in interest rates compared to the rate cut in April 2008 and a small increase in the price of building insurance premia.

David Kern, chief economist at the British Chambers of Commerce, believes that the CPI will fall further towards the 1% predicted by the Bank of England and that RPI will continue to suffer deflation for some time.

He commented:

Whatever the longer-term inflation risks may be, they are unlikely to materialise in the near future and can only be dealt with after the recession ends.

The main priority must remain on easing the severe downturn in economic activity and to contain the relentless increases in unemployment. Economic policy must stay expansionary and it would be dangerous to withdraw the monetary and fiscal stimulus too early.

[Picture credit: austinevan licenced from Flickr]