Financial News

  • 18 June 2014, 13:34

'Supermarket Price War' Helps Inflation Ease

The first annual fall in food prices since 2006 has helped the rate of inflation tumble to a four-and-a-half year low of 1.5%.

The Office for National Statistics (ONS), which also published figures highlighting further gains for UK house prices, said the dramatic easing in the annual rate of price growth in May could be largely explained by a supermarket price war.

The ONShad measured CPI inflation at 1.8% the previous month.

The major "big four" supermarket chains ofTesco, Asda, Sainsbury's and Morrisonsare scrapping for market share in a bitterly contested fight for business that has seen heavy discounters like Aldi and Lidl gaining ground.

The ONS charted an annual 0.6% fall in food prices in May.

It said a broad range of goods including drinks and clothing fell in value.

Air fares, which were lower due to the timing of Easter, had a significantdownward effect though petrol pulled in the other direction as pump prices creptup.

The figures were announced days after Bank of England governor Mark Carney signalled thatthe first hike in the base rate of interest could come sooner than thought - with speculation pointing to this autumn.

While continued low inflation - below the Bank's 2% target - appears to ease any pressures on the Bank to lift rates, Mr Carney has highlighted stronger economic growth and falling unemployment as factors to consider in raising the rate from its historic low of 0.5% - a level that has not changed since March 2009.

An area of concern for Mr Carney and the bank's Financial Policy Committee, which monitors risks to financial stability, is UK house price inflation which soared ahead at an annual rate of 9.9% in April.

The ONS measured year-on-year growth of 18.7% in London though more recent reports from the likes of the Royal Institution of Chartered Surveyors and Rightmovehave charted an easing in price growth in the months since - citing new controls on mortgage lending as a factor.

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