MPC will be breathing a sigh of relief over today's CPI inflation figures, says ITEM Club

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Nida Ali, economic advisor to the EY ITEM Club, comments on today’s CPI inflation figures:

  • Today’s figures will come as a huge relief to the MPC
  • The headline figure is lower than expected
  • We expect inflation to come back towards the 2% target by the end of this year

“Today’s CPI inflation figures will come as a huge relief to the MPC. Temporary factors that had been keeping inflation elevated for over a year are finally starting to fall out of the calculation.

“The headline figure is lower than we expected. Although petrol prices, which hadn't started falling at the time of the April figures, were always expected to exert a significant downward pressure on overall prices, we expected this to be offset by higher air fares which were low last month due to the timing of Easter.

“This data strengthens our conviction that inflation will come back towards the 2% target by the end of the year and sets the scene for further monetary policy easing. In recent speeches, the Governor has already made it clear that the case for implementing more QE has risen and today's data gives the Bank increased flexibility to put this into effect. We wouldn't be surprised if the Bank authorised further asset purchases as early as next month.”