U.K.’s consumer price inflation eases in May to lowest level since June 2016

U.K.’s annual pace of CPI inflation decelerated further in the month of May. The CPI index dropped to 0.5 percent year-on-year from April’s 0.8 percent. May’s data is the lowest level since June 2016. The outturn was consistent with median expectation and reflected the effect of lower motor fuel prices last month and downward effects from items in the recreation and culture and restaurant and hotels categories.

The core inflation rate slowed down further, easing to 1.2 percent year-on-year from prior month’s print of 1.4 percent. Nevertheless, the ONS noted that due to social distancing measures being implemented, price collection for several products will have been more difficult either because sample sizes were too small or prices were simply unavailable.

For considerable proportion of the basket where prices were unobtainable because of businesses not being open, the ONS will have set the pace of inflation as equal to the pace of price growth in the remainder of the CPI basket, noted Lloyds Bank in a research report.

“However, undoubtedly the near-term outlook is consistent with inflation remaining well below 1 percent for some time, justifying the Bank of England keeping policy extremely loose for some time still. Ultimately, the balance between demand and supply will be key to the longer-term outlook for inflation, over which there remains a great deal of uncertainty at present”, added Lloyds Bank.