Here was the CPI report for April as added context. The estimate this time around is for headline annual inflation to fall to 3.4% in May, down from 3.5% in April. And for core annual inflation, it is expected to drop to 3.5% from 3.8% previously. That being said, it is on the high side after the big jump in April as noted above.
Looking to the changes for this latest report, there are a couple of things to note.
For one, April saw a surprisingly strong jump in services inflation which could be unwound in May. Oxford Economics notes that "the outturn was artificially boosted by an unusually large increase in vehicle excise duty sub-category". And it has since been revealed by the ONS that it was due to an error in the data supplied by the Department for Transport and will be corrected in the May report. That doesn't help with the ONS' credibility on data accuracy over the past year or so.
Also, there was a high reading in air fares sub-category for April, as the collection dates coincided with the Easter holiday. That wasn't the case in 2024 as the Easter holiday fell at the tail end of March. Hence, that should see the higher prices there ease in May.
In any case, the slight drop in price pressures today will do little to alleviate pressure on the BOE. At above 3% and the retail prices index (RPI) holding above 4%, households are certainly feeling the pinch of higher prices. And that means there's still more work to be done by the BOE in getting inflation back to the 2% target.
As such, the report today will not change expectations for the upcoming BOE meetings. The next one tomorrow sees ~88% odds of the BOE keeping the bank rate unchanged. And the next 25 bps rate cut is only baked in for September, with ~50 bps of rate cuts priced in between now and year-end.
This article was written by Justin Low at www.forexlive.com. Read More Details
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