Inflation is back as costs of transport push up CPI

THE UK has scraped its way out of deflationary territory the latest official figures have shown.

However, annual UK consumer prices index (CPI) inflation was only 0.1 per cent in May, way below the target of two per cent set for the Bank of England by the Treasury.

In April, the UK suffered annual deflation on the CPI measure for the first time since 1960.

The UK’s return to inflation, albeit marginal, was enabled in large part by transport costs. Air fares increased in May but fell in the same month of last year. Petrol and diesel prices rose by more last month than in May 2014.

Liz Cameron, chief executive of Scottish Chambers of Commerce, said: “Inflation remains at very low levels but [the UK] is now no longer in a deflationary position.”

And she urged the Bank of England to maintain UK base rates at their record low of 0.5 per cent for now.

Ms Cameron said: “We would fully expect inflation to begin its journey back towards the ... two per cent target as the year goes on, and as elements such as the differential between this year’s and last year’s oil prices continue to become less of a factor.

“Nonetheless, the Bank of England must maintain a steady hand on interest rates and keep these at their historic low at least for the time being.”

Howard Archer, chief UK economist at IHS Global Insight, said: “We doubt deflation will recur in the UK, although it cannot be ruled out if oil prices take a renewed appreciable downward lurch, which seems unlikely.”