The consumer prices index rose by 3.4% year on year in May, down from 3.5% in April, according to the Office for National Statistics. This was bang in line with City economists’ forecasts. The central bank’s target is 2%.
The core rate, which excludes energy and food, fell to 3.5% from 3.8%, also as expected.
Transport costs eased last month, pushing overall inflation lower.
The ONS said transport prices rose by 0.7% in the 12 months to May, down from 3.3% in the 12 months to April, reflecting drops in air fares (which jumped in April) and petrol prices, together with the correction of an error in vehicle excise duty prices.
That was overstated in April and the series corrected from May. As is standard practice, the April figure has not been revised, the ONS said.
The average price of petrol fell by 2.1p a litre between April and May to 132.4p a litre, down from 148.8p in May 2024. Diesel prices fell by 2.6p a litre to 139.1p a litre, down from 156.3p in May last year.
Food and non-alcoholic drink prices have picked up, though – rising by 4.4% in the 12 months to May versus 3.4% in April. This was the highest rate of food inflation since February last year, when it was 5%.
The price of chocolate, confectionery and ice-cream rose between April and May but fell between the same months a year ago. Meat prices rose by more this year than this time last year.
The inflation figures come a day before the Bank of England announces its latest interest rate decision, with markets expecting no change at noon tomorrow.
Traders have pencilled in a 10% chance of a cut. A reduction in August seems more likely. Markets are still expecting two more quarter-point cuts to the base rate by the end of the year, from its current 4.25%.
Japan’s exports have fallen for the first time in eight months along with imports, reflecting the impact of sweeping US tariffs.
Exports dropped by 1.7% year on year to a four-month low in May, after a 2% gain in April, and marking the first decline since September. Imports slumped by 7.7% to a three-month low, the biggest drop since the start of last year.
Japan’s Nikkei shrugged off the news to rise by 0.8%, while several other Asian stock markets were in the red – Hong Kong’s Hang Seng fell by 1.2% and the Singapore exchange lost 0.4%. The South Korean Kospi rose by 0.5% and Chinese indices rose slightly.
Later today the US Federal Reserve’s open market committee holds its policy meeting and announces its decision at 7pm BST. The US central bank is expected to keep interest rates unchanged at 4.5%. The Fed chair, Jerome Powell, will explain the thinking behind the decision at a press conference half an hour later.
The agenda • G-7 leaders meeting day two • 9.30am BST: UK house prices and rents • 10am BST: eurozone inflation (final) for May • 1.30pm BST: US housing starts for May and initial jobless claims • 7pm BST: US Federal Reserve interest rate decision (no change expected)
You are receiving this email because you are a subscriber to Business Today. Guardian News & Media Limited - a member of Guardian Media Group PLC. Registered Office: Kings Place, 90 York Way, London, N1 9GU. Registered in England No. 908396
G7 leaders are paralysed by their fear of upsetting Donald Trump 
