June 16, 2009

British inflation falls less than expected

Consumer prices in Britain dropped in May, but far less than economists predicted, the Office for National Statistics said Tuesday.

The headline Consumer Price Index fell to 2.2 percent, but economists had expected prices to fall below the Bank of England's target of 2 percent to 1.9 percent.

It was the 20th consecutive month inflation held above the central bank's target rate, The Times of London reported.

The Retail Price Index, which includes housing costs, rose slightly, from minus 1.2 percent to minus 1.1 percent. The shift contradicted expectations, which called for a drop to minus 1.5 percent, the Times said.

Today's data is yet another upside inflation surprise -- the latest in a lengthening line of releases that are forcing us to re-evaluate just how severe the risk of broad deflation in the UK is, said Collin Ellis at Daiwa Securities.

Economist Jonathan Loynes at Capital Economics, said, we still think that core inflation will fall sharply over the next year or so in response to the general weakness of demand and opening up of a large amount of spare capacity.

We still see scope for inflation to drop a fair bit further ... by the late summer, he said.