Cost of living falls again

The Office of National Statistics (ONS) has announced a further fall in inflation, as the Consumer Prices Index (CPI) – a measure of the cost of living – fell from 2.2% in April to 2.3% in May.

At the same time, the Retail Prices Index (RPI), which has includes mortgage interest payments and housing costs, moved to -1.1% from -1.2%, which places the UK in deeper deflation.

For consumers, continuing falls in the level of inflation can be a mixed blessing. While a falling RPI generally signals a reduction in mortgage costs and the price of the items in your shopping trolley, many private sector firms use the index as a benchmark for wage increases, so many workers are now minding that they will receive no salary increase this year, or perhaps even suffer wage cuts.

Commenting on the May inflation figures published today by the ONS, David Kern, Chief Economist at the British Chambers of Commerce (BCC), said:

“Although the drop in inflation was less than anticipated, these figures indicate that CPI inflation is set to fall further in the coming months, while RPI is likely to move deeper into deflationary territory. Whatever the longer-term inflation risks may be, they are unlikely to materialise in the near future and can only be dealt with after the recession ends.”

“The main priority must remain on easing the severe downturn in economic activity and to contain the relentless increases in unemployment. Economic policy must stay expansionary and it would be dangerous to withdraw the monetary and fiscal stimulus too early.”