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UK inflation lower than expected in May

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UK inflation lower than expected in May

Annual consumer price inflation in the U.K. remained unchanged in May even as fuel prices increased the most since 2011.

Prices increased by 2.4% from a year earlier, the same rate as in April and falling short of Econoday's consensus forecast of 2.5%. Core inflation, which excludes energy, food, alcoholic beverages and tobacco, also held steady at 2.1% in May, according to the Office for National Statistics.

"Recent large rises in the cost of crude oil have fed through to prices paid by consumers at the pump. Air fares and ferry prices also contributed to the overall increase in inflation due to the timing of Easter," Mike Hardie, head of inflation at ONS, said. "However, these effects have been partly offset by price falls in computer games and energy costs rising by less than this time last year."

On a monthly basis, the consumer price index increased by 0.4% in May, slightly above expectations of 0.3%. Prices of food and non-alcoholic beverages decreased from the previous month.

The pound was down 0.37% against the U.S. dollar as of 5:32 a.m. ET.

"Were it not for energy costs though, we suspect inflation would be falling further. We expect core CPI to fall back to the 2% target next month, and we think it will stay there or just below for at least the next few months," said James Smith, developed markets economist at ING Research. "We still think an August rate rise is more likely than not, but this does rely on the economy showing more convincing signs of recovery after the weak first quarter."

Meanwhile, the annual rate of inflation for goods leaving the factory gate, or output prices, rose for the first time since November 2017, rising by 0.4 percentage point to 2.9% in May from April. Output prices increased by 0.4% on a month-over-month basis.

The annual inflation rate for materials and fuels purchased by manufacturers, or input prices, reached its highest level in almost a year, increasing by 3.6 percentage points to 9.2% in May. Input prices were up 2.8% in May from April.