–May CPI +0.2% m/m; +4.5% y/y vs Apr +4.5% y/y; in-line with median
–May core CPI unch. m/m; +3.3% y/y vs Apr +3.7% y/y; below 3.3% median
–May RPI +0.3% m/m; +5.2% y/y; May RPIX +0.3% m/m; +5.3% y/y

LONDON (MNI) – Consumer price inflation remained at its highest
level for more than two years in May, as a fall in airfares was more
than offset by rising food prices, according to figures released by
National Statistics Tuesday.

The consumer prices index rose 0.2% on the month in May, leaving
annual inflation at 4.5%, unchanged from April, which was the highest
since October 2008.

The outturn was in-line with the median forecast from a Market News
survey.

In spite of inflation running at more than double the 2% inflation
forecast, the majority on the Monetary Policy Committee of the Bank of
England have argued that interest rates should not be raised as the rise
in price pressures is temporary.

May saw the cost of transport fall back sharply from April,
following a hike in prices due to Easter. Air, sea and rail transport
added 0.36 percentage point to the monthly change in CPI in April and
subtracted 0.27 percentage point in May.

There were, though, widespread price rises across nearly all other
categories with food and non-alcoholic beverages prices rising 1.3%
between April and May, adding 0.15 percentage point to the monthly
change in CPI.

There were also significant price rises in restaurant and hotels
and miscellaneous goods and services, with both categories adding 0.06
percentage point to the CPI monthly change.

External member of the Monetary Policy Committee Martin Weale said
in a speech last night that interest rates should be raised immediately
due to the high level of inflation and, in part, due to the danger that
this would push up inflation expectations.

Core CPI, which excludes energy, food, alcohol and tobacco, was
unchanged on the month and fell to 3.3% from a record 3.7% in April. The
April figure was boosted strongly by the Easter rise in transport costs
which fell back in May.

Recent comments from Bank of England Governor King show he expects
inflation to rise to around 5% later this year mainly due to temporary
factors including commodity prices and the increase in VAT, before
falling back through 2012 and 2013 towards the target.

This month’s figures, which show a broad uptick in prices in May,
as well as news that electricity prices are set to rise sharply in the
autumn, suggests a rise to 5% or even higher does indeed look likely.

The Retail Prices Index, which used to be the key index for gauging
inflationary pressure in the economy, rose by 0.3% on the month in May
with inflation remaining steady at 5.2%.

Excluding mortgage interest payments, RPIX rose 0.3% and inflation
was unchanged at 5.3%.

–London bureau: 0044 20 7862 7491; email: drobinson@marketnews.com

[TOPICS: MT$$$$,M$B$$$,MABDS$]