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UK Inflation remains double Bank of England's target as food and energy costs spiral

By Daily Mail Reporter

Last updated at 1:11 PM on 14th June 2011

  • Rate remains above the Bank's target for 18th month
  • Consumer Prices Index held at 4.5 per cent
  • Retail Prices index also unchanged at 5.2 per cent
  • Inflation static but consumers see real terms drop in earnings

Inflation remained at a two-and-a-half-year high in May, official figures revealed today, as rising food, drink and fuel prices added to the squeeze on household spending.

The Office for National Statistics data shows the consumer prices index (CPI) measure of inflation for May was held at 4.5 per cent - its highest level for more than two years.

It is the 18th month in a row that inflation has been above the Bank of England's target of 2 per cent, continuing the pain for cash-strapped consumers.

Inflation has been above the Bank of England's target of two per cent for 18 months

Inflation has been above the Bank of England's target of 2 per cent for 18 months

Upward pressure on inflation came from food prices, which rose 1.3 per cent between April and May, while alcohol and tobacco prices increased 0.7 per cent over the month, driven higher by hikes in duty and VAT.

The price motorists paid at the pumps rose to a record high of £1.36p per litre for petrol and £1.42p for diesel.

However, these inflationary pressures were largely offset by a decline in transport costs, which had been higher the previous month as airfares shot up amid the flurry of bank holidays caused by Easter and the royal wedding.


Today's announcement will keep pressure on the Bank of England to raise interest rates from their record low of 0.5 per cent in a bid to beat down inflation.

The Retail Prices Index has also remained unchanged at 5.2 per cent in May, the ONS said.

Inflation shot up from 4 per cent in April as transport costs went up in response to rising oil prices and increased demand for travel around the Easter holidays and royal wedding.


A recent report found that more than 60 per cent of people over the age of 50 said their lifestyle had 'crashed' over the past year

Pensioners are being hit by a higher rate of inflation with a typical OAP battling an annual rise in the cost of living of 4.6 per cent - 0.1 per cent above the CPI.

This is set to rise over the next few months because of hikes in gas and electricity prices.

This compares to a 'real' inflation rate of just 2.9 per cent a year for the young, or an average for all age groups of 3.5 per cent, according to the Institute for Fiscal Studies.

The IFS said pensioners were hit harder by many of the bills that are rising, but feeling none of the benefits of bills which are falling.

The average ‘dual fuel’ bill has rocketed to £1,162 a year, forcing many to cut back on their heating because they simply cannot afford to stay warm.

Few have benefited from plummeting mortgage costs because most have paid them off.

A recent Saga report found that more than 60 per cent of people over the age of 50 said their lifestyle had 'crashed' over the past year. It warned their lifestyle was being crippled by the toxic combination of the high cost of living, record petrol prices, tax hikes and poor pay rises.

The situation is made worse by the fact that the State pension is one of the meanest in the developed world.

A full basic State pension is worth just £102.15 a week, and many are not even eligible for the full amount.

Although transport costs are thought to have eased in May, this is expected to have been offset by food and energy price hikes.

The unchanged inflation figure will ease the pressure on the Bank of England to raise interest rates from their historic low of 0.5 per cent, although inflation is still forecast to hit five per cent later this year.

The rate is forecast to drop back towards target by 2013 and the Bank has concluded that there is little evidence that the UK is slipping into a damaging inflationary spiral.

It is concerned that if people expect inflation to remain high, they will put more pressure on employers to raise wages, which will in turn lead to higher prices, known as a wage-price spiral.

However in a quarterly bulletin released this week, it reported few signs that inflation expectations have affected price or wage setting behaviour.

Economists do not expect interest rates to rise until November at the earliest.

The CPI figure for May is expected to reflect recent rises in the price of food. Last week, the British Retail Consortium said food inflation hit a 23-month high of 4.9 per cent in May, up from 4.7 per cent in April.

Gas and electricity prices are also higher than a year ago after all the 'big six' suppliers put prices up over the winter.

Allan Monks, an economist at JP Morgan Chase, said: 'A surge in transport services prices in April prompted a significant upside surprise in inflation last month. But these prices appear set to drop back in May and exert downward pressure on inflation.

'Despite this, we expect the CPI to hold at 4.5 per cent next week as the contribution from food and energy prices will increase in May, offsetting the pull down from softer transport prices.'

The retail prices index measure of inflation, which includes housing costs, is expected to be flat at 5.2 per cent.

Inflationary pressures are expected to continue to rise in the near future. Last week, Scottish Power, which serves 2.4 million households, said it will increase average gas and electricity prices by 19 per cent and 10 per cent respectively from August 1.

The other 'big six' energy companies are expected to follow suit in response to soaring wholesale energy costs.


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Commander Gideon is just back from the Bilderberg fest. There he will have received his orders for the complete destruction of our economy. We are surrounded by Traitors. All in it together.

- bem, sussex, 14/6/2011 12:58

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How I wish all those who whinge about inflation, immigration, EEC Membership and Overseas Aid would just put a lid on it, do you not realise that your and my opinions matters little to whatever political party is in power and I have decided it is no longer worth the effort to vote at the next election.

- JamesB, Wishaw, Scotland, 14/6/2011 12:57

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Of course! Great Britain is still in the EU. Once we shake that burden from our financial shoulders we can really begin to run. Happybrian That makes NO sense. Why is it BRITAIN that has high inflation and stagnant growth, while in the EU they have LOW inflation, and much higher growth rates? Germany is having an export led surge in growth while their interest rates are many times higher than ours, and due to be increased soon! Seems like it is Britain that is the odd one out. We chose to stand aside from their unified financial economy. How can you blame that on the EU?

- BertieFox, Tours, 14/6/2011 12:52

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This lot need sacking. Get some 'Austrian' economists in there, then we'll have a stable currency and little or no inflation.

- Phil, London, 14/6/2011 12:49

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So much for the 'independence' of the Bank of England and that 2% inflation target. They could bring it down from 5% tomorrow even if they increased interest rates by a small amount. That's because the pound is constantly hit by the continuing low rate and this forces up inflation in the cost of food and commodity imports. Having high inflation is a deliberate Bank and government policy. First it reduces the value of government debt, as well as private debt, while the mugs who pay for it are those with hard won savings. Pensioners and others on low fixed incomes are already suffering worse from inflation than the rest of the community, but we are being deliberately hit by this hidden tax to help those who are overextended with debt. The low pound is doing nothing to help with exports, as the only successful exporting country is Germany, in the Eurozone with interest rates 3 times higher. If an interest rate hike is such a bad idea, why is the ECB doing it?

- The History Man, France, 14/6/2011 12:45

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Nationalise the banks. Give the money power back to the people where it rightfully belongs. No more financial vultures in our name. Get rid of the lot of them

- sid, essex, 14/6/2011 12:38

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