Inflation above target for 42nd consecutive month, rises to 2.7 per cent in May

Inflation above target for another month, with prices rising by 2.7 per cent in the year to May as measured by the Consumer Price Index. Analysts had expected a rise to 2.6 per cent from 2.4 per cent in April.

Rises in annual CPI were largely driven by motor fuel, air fares, clothing and footwear, while food prices dipped slightly.

The Retail Price Index was in line with expectations, rising from 2.9 per cent to 3.1 per cent in the year to May.

Factory price rises were slightly softer, with PPI output up from 0.9 per cent to 1.2 per cent (rather than an estimated 1.5 per cent) and PPI input up from -0.1 per cent to 2.2 per cent (rather than an estimated 2.5 per cent).

Howard Archer of IHS Global Insight:

Looking ahead, consumer price inflation is likely to move modestly higher over the next few months, partly due to some lagged impact of sterling’s decline earlier this year and also to challenging base effects (inflation fell back markedly from 3.0% in April 2012 to 2.2% in September) but inflation now looks likely to peak around 3.0% over the summer rather than 3.5% as had previously seemed likely.

Much will clearly depend on oil prices which have regained some of their losses to currently trade at a 10-week high around US$105/barrel. We do not expect to see a sustained appreciable move back up in oil prices. Meanwhile, sterling has strengthened lately due to improved UK economic news.