"It [inflation] should begin a slow but steady drift down," and so "should not prevent Mr. Carney from giving the economy more policy support in order to achieve ‘escape velocity' "
- Vicky Redwood, an economist at Capital Economics Ltd.
Britain's consumer prices accelerated more than initially predicted in May, boosted by a record jump in air fares, the Office for National Statistics said Tuesday. The nation's inflation rate extended its persistence above the Bank of England's 2% target level, with consumer prices soaring 2.7% from a year earlier, compared with 2.4% in the preceding month and outpacing analysts' expectations for a 2.6% gain. On a monthly basis, inflation rate increased 0.2%. Airfares rocketed 22% between April and May, the highest monthly increase since records began in 2001. Soon after the report the BoE said it expects inflation to accelerate even further and exceed 3% later this year.
Figures also showed that annual core inflation, excluding prices of energy, food and alcohol also rose to 2.2%, up from last month's annual figure of 2.0%. Meanwhile, there was a slightly smaller contribution from prices of food and non-alcoholic beverages, which stagnated from April, compared with a rise of 0.3% between April and May in 2012. The BoE policy members decided to keep the pace of its purchase plan on hold at 375 billion pounds this month. Despite the acceleration in consumer prices, it is expected that it will fall back down to approach the 2% target sooner than previously expected.
© Dukascopy Bank SA