Inflation rate eases slightly from highs

The Consumer Prices Index (CPI) eased from 3.7 per cent to 3.4 per cent last month – slightly below the 3.5 per cent expected by the City – said the Office for National Statistics (ONS).

The ONS said average petrol prices rose 0.3p to a record 120.5p in May, but overall inflation fell because motorists were hit by even steeper price rises a year earlier.

Inflation has been above the Bank of England's two per cent target since last November, but yesterday's slightly bigger-than- expected fall may go some way to soothing nerves on the Bank's rate-setting committee over rising prices.

The Bank's latest survey on inflation attitudes last week showed average expectations for the year ahead putting the cost of living at 3.3 per cent – up from 2.5 per cent in February.

Governor Mervyn King has said the CPI should fall back to the Bank's target within a year as a weak recovery drags down prices, although further pressure could come as soon as next week if Chancellor George Osborne elects to raise VAT in the emergency Budget.

The ONS said other factors behind the CPI fall included falling food prices against rises a year earlier, with meat and fruit cheaper this year.

UK market leader Tesco became the latest food retailer to flag up the impact of slowing food inflation yesterday as its UK like-for-like sales growth excluding petrol and VAT effects fell to only 0.1 per cent.

Alcohol and tobacco duty rises came into force in May last year due to a later Budget; this time effects were felt in April.