RTTNews - U.K. annual inflation slowed more than expected in April to a level last seen in January 2008 as price pressures eased after the economy entered its worst recession since 1979.
Tuesday, the Office for National Statistics reported an annual inflation of 2.3% in April, down from 2.9% in the previous month. The annual rate stood slightly below the expected level of 2.4% and reached the lowest since January 2008, when it was 2.2%.
On a monthly basis, consumer prices climbed 0.2%, less than the expected rise of 0.4%.
Core inflation that strips out energy, food, alcohol and tobacco slowed to 1.5% from 1.7%. This was the weakest since January 2009.
The largest downward pressure on the annual rate in CPI came from housing and household services. This was principally due to electricity and gas bills, which fell this year. Food and non-alcoholic beverage also had a downward pressure on annual change.
On the other hand, a large upward pressure came from transport costs due to purchase of vehicles, fuels and lubricants, and air transport. Another category, which had an upward effect, was communication.
The retail price index rose to 211.5 in April from the prior month's 211.3, representing a 0.1% monthly increase. Meanwhile, retail prices declined 1.2% year-on-year versus a 0.4% fall in March. This is the lowest since official series began in June 1948. Economists were looking for a 0.2% monthly rise and an 1.1% annual fall.
Excluding mortgage interest payments, the index was up 1.7% annually, slower than the 2.2% rise seen in the prior month. The rate reached the lowest since June 2002.
The main factors affecting the CPI also affected the RPI. Additionally, there was a large downward pressure from housing where the largest effect came from mortgage interest payments following March's half point decrease in the Bank rate to 0.5% from 1%.
The Bank Rate now stands at the lowest level since the central bank was established in 1694.
Commenting on today's report, Peter Dixon, an analyst at Commerzbank said big falls in RPI inflation are probably behind us, although it is likely that the trough would be reached in late summer as the impact of the oil price spike is at its most acute.
Further, Dixon said the CPI rate would also potentially go as low as zero by September, though this would prove only to be a temporary low. The rate ought to be much nearer the 2% target once the VAT cut drops out of the calculations.
David Kern, Chief Economist at the British Chambers of Commerce commented that the figures show that whatever the longer-term inflationary risks may be, inflation is set to fall further in the near future with RPI remaining in deflationary territory.
The central bank in its latest quarterly Inflation Report said CPI inflation is likely to drop below the central bank's target of 2% later this year on diminishing contribution from food and energy prices. Further, it expects inflation to stay below target in coming few years.
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