U.K. output price inflation fell to a two-and-a-half year low in May due to a sharp fall in oil prices, data from the Office for National Statistics showed Friday.
Output price inflation slowed to 2.8 percent in May, the lowest since November 2009, from 3.2 percent in April. The annual rate was expected to stay at 3.2 percent.
Data suggests that easing pipeline inflation will help to bring down consumer price inflation over the coming months.
IHS Global Insight economist Howard Archer said the producer price data may help to ease some concerns within the Bank of England's monetary policy committee over persistent sticky inflation and facilitate further quantitative easing, should the economy show further weakness.
On a monthly basis, the output price index fell 0.2 percent, in contrast to a 0.1 percent rise forecast by economists. The decline follows a rise of 0.6 percent in April.
Prices of petroleum products fell 3 percent month-over-month in May, marking the biggest monthly fall in the index since January 2009. The decline has improved manufactures' margin and reduced the need to raise their prices.
Excluding volatile food, alcohol, tobacco and petroleum prices, core inflation slipped to 2.1 percent annually from 2.3 percent in April.
Manufacturers' input price inflation also weakened notably in May. Input price annual inflation came in at 0.1 percent, the lowest since September 2009, also sharply down from the 1 percent increase in the previous month.
Month-on-month, input prices declined 2.5 percent, which was the biggest decrease since December 2008. Economists had expected a 1.6 percent drop for May following a 1.4 percent decline a month ago.
The Bank of England yesterday decided not to lift its GBP 325 billion quantitative easing as some members pointed to risks from inflation that is currently at 3 percent, a full percentage above the 2 percent target. The central bank also retained its record low 0.50 percent interest rate.
Elsewhere, a BoE/GfK survey showed that Britons' inflation expectations for the year ahead rose to 3.7 percent in May from 3.5 percent in February.
Further, 41 percent of respondents expect interest rates to rise over the next 12 months, compared with 35 percent in February. Meanwhile, 7 percent forecasts rates to fall.
by RTT Staff Writer
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