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Inflation rise leads to interest rate speculation

17 Jun 2014

According to the Office for National Statistics (ONS), the rate of inflation in April 2014 rose for the first time in nine months.

Discounts in shops and air fares are thought to be the driving factors behind the rise. Expectation is that Consumer Price Index (CPI) figures for May will show a slight decline to 1.7%, according to a poll of economists by Reuters. The Retail Price Index (RPI) inflation measure is expected to remain at 2.5%.

Economist Alan Clarke spoke of a supermarket price war being responsible for the lack of increase in May. ‘In particular Morrisons cut the price of 1,200 goods by an average of 17% and Tesco slashed a variety of food prices’.

These figures are lending strength to increased speculation that the Bank of England (BoE) will raise interest rates before the end of 2014. The possibility of an increase from the current 0.5% low has been suggested and refuted by BoE several times this year.

Thinktank Capital Economics released a statement, saying: ‘While most forecasters expect CPI inflation to rise back towards the 2% target this year, we still think that a combination of stable energy prices, falling import prices and recovering productivity could mean that it falls to as low as 1% before the end of the year’.