Cost of living slows in May

16 June 2009

Falling food inflation led to another fall in the cost of living in May, official figures today reveal. 

The Consumer Prices Index (CPI) – the official measure of inflation – fell to a rate of 2.2% in May, down from 2.3% the previous month. The Bank of England’s official inflation target is 2%, although it has warned the CPI is likely to undershoot this over the next year.

However, the Retail Prices Index (RPI) – another measure of inflation that also includes mortgage interest payments – rose during the month from -1.2% to 1.1%. RPI turned negative last month after hitting zero in March.

The first in RPI reflects the fact that average mortgage interest payments and buildings insurance premiums were higher in May than they were in the same month last year. 

The figures came as a surprise to economists, many of whom expected CPI to fall below 2% this month and RPI to remain negative.

Jonathan Loynes, chief European economist at Capital Economics, describes the figures as "a bit disappointing". However, he remains convinced that the cost of living will continue to slow in the months ahead.

Two of the upwards pressures on prices (see list below) were alcohol and tobacco costs. However, this can be explained by the duty increases announced in April's Budget.  

Charles Davis, economist at the Centre for Economic Business Research, says: "The inflation figures have surprised on the upside; inflationary pressures are more persistent than expected. However, inflation is likely to fall further in the coming months in contrast with the period from May to September last year when inflation rocketed. We still expect inflation to undershoot the 1% mark."

And Loynes adds: "We still think that core inflation will fall sharply over the next year or so in response to the general weakness of demand."

He also predicts that food prices will fall "considerably further".

Going up

Mortgage interest payments

Building insurance premiums

Alcoholic drinks


Clothing and footwear

Leisure services – particularly DVDs and televisions


Going down

Food – particularly meat, vegetables, bread and cereal

Electricity bills

Housing rents

Furniture, household equipment and maintenances


Add new comment