UK inflation on the rebound

After dropping to below zero in April for the first time in 55 years, British inflation turned positive again in May, according to data from the Office for National Statistics (ONS).

The ONS says that consumer prices rose 0.1 per cent in the 12 months to May, showing recovery from a fall of 0.1 per cent in April. Compared to the previous month, inflation rose 0.2 per cent.

The May figures were also in line with median forecasts from a Reuters poll of economists.

Inflation is likely to pick up, however. In February, Bank of England (BoE) governor Mark Carney predicted that inflation would turn negative, but then start to rise as last year's sharp drop in oil prices worked itself out. He also indicated that Britain was not heading into a period of damaging deflation.

In fact, the BoE believes that extremely low inflation rate could help the British economy by increasing household spending power.

In recent months, the wages of British workers have also picked up. Reuters reports that figures due on Wednesday are expected to show that basic earnings, excluding bonuses, have risen 2.5 per cent in the three months to April.

Sterling is expected to rise against a number of currencies in coming months – limiting the pace of price rises.

According to the ONS, upward pressure on prices in May was also the result of a bounce-back in air fares. This dragged down inflation in April on the different timing of the 2015 and 2014 Easter holidays.

Prices rising

Fuel prices went up 1.9 per cent from May to April as global oil prices recovered. Food prices were also on the rise. In monthly terms, they went up 0.1 per cent from April – their first month-on-month rise since December.

Data from the ONS also showed that an underlying measure of inflation that strips out increases in energy, food, alcohol and tobacco also saw a slight increase from April – and it rose by a yearly 0.9 per cent in May.

House prices

In April, house prices rose 5.5 per cent in April, slowing from 9.6 per cent in March. This was the biggest slowdown in ten years and the lowest rate of growth since December 2013, reflecting market uncertainty around May's general election and tax changes in Scotland.