In May, UK CPI inflation eased unexpectedly. The annual rate of inflation slowed from 3.0% Y/Y to 2.8% Y/Y, while the consensus was looking for a stabilization at 3.0% Y/Y. The annual rate of inflation is now at its lowest level since November 2009. On a monthly basis, consumer prices dropped by 0.1% M/M, while a sligh increase was expected.
The breakdown shows that prices of fuel & lubricants (-3.1% M/M, transport (-0.8% M/M),recreation (-0.4% M/M), alcohol & tobacco (-0.1% M/M), housing (-0.1% M/M) and clothing & footwear (-0.1% M/M) dropped in May, which was partly offset by higher prices for communication (0.8% M/M), household goods (0.6% M/M), hotels & restaurants (0.4% M/M) and food (0.3% M/M). Core inflation surprised on the downside too, although they picked up from 2.1% Y/Y to 2.2% Y/Y. It is an encouraging sign that UK inflation is now finally slowing significantly, giving the Bank of England more leeway to stimulate the economy by further increasing the amount of asset purchases.