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Retail inflation accelerates to four-month high in May

13 June 2018

Mike Hardie, head of inflation at the ONS said: "Recent large rises in the cost of crude oil have fed through to prices paid by consumers at the pump".

Consumer-price growth stayed at 2.4 percent in May, as forecast by both the Bank of England and economists surveyed by Bloomberg.

The rising cost of a tank of petrol has kept up pressure on inflation, holding it at 2.4pc in May, according to official figures.

'Air fares and ferry prices also contributed to the overall increase in inflation due to the timing of Easter.

The rise in fuel prices was offset by a fall in "recreational and cultural goods and services", in particular computer games.

Ruth Gregory, senior United Kingdom economist at Capital Economics said oil prices are expected to fall later this year and overall "the inflation figures have not altered our view that the [Bank of England's] MPC will probably press ahead and raise interest rates in August". However, money markets see the chance of a hike in August at little more than 50 percent.

The surge in fuel prices came in a month that saw crude oil twice break through the $80-a-barrel mark.

Another outcome of the inflation data was a fall in the value of the pound against the dollar and the euro as investors bet that it reduced the chances of a rise in interest rates.

The cost of filling up a vehicle is now higher than at any time in the last 3 1/2 years.

Core inflation, which excludes food, energy, tobacco and alcoholic drinks, stayed at 2.1 percent last month. Cereals and products saw 2.78 per cent inflation in May as against 2.56 per cent in April, while oil and fats turned dearer at 2.46 per cent from 2.11 per cent in April.

Manufacturers' raw-materials costs were 9.2 percent higher than in May 2017, boosted by the biggest monthly jump - 2.8 percent - since October 2016 and above all forecasts in a Reuters poll.

The ONS said increases in world prices were also related to declines in production in Venezuela. While inflation might rise to 2.6 or 2.7 percent in June, it was likely to resume falling in July and be back at the BoE's target of 2 percent by the end of the year.

House-price growth slowed to 3.9 percent in April from a year earlier, the weakest pace in more than a year.

Retail inflation accelerates to four-month high in May