Tuesday, May 22, 2012
Inflation down to 3% - a no letter day for the Bank
Posted by David Smith at 10:00 AM
Category: Thoughts and responses

At last some unexpectedly good news on inflation with a drop in the rate of consumer price inflation from 3.5% in March to 3% in April, its lowest since February 2010. For the first time since the general election Sir Mervyn King, the Bank of England governor, has not had to write a letter explaining why inflation is more than a percentage point away from the target.

Retail price inflation was more sluggish, dropping only from 3.6% to 3.5%, and there may have been some temporary factors behind the CPI inflation fall. According to the Office for National Statistics: "Air transport, off-sales of alcohol, clothing and sea transport were the most significant drivers behind the decrease in annual inflation between March and April." The clothing element could have been the grim April weather, with retailers desperate to unload summer stock.

Even so, better news than expected. More details here.

The public finances are harder to read, distorted by the 28 billion transfer of the Royal Mail pension fuind to the public finances. On the face of it there is an underlying deterioration, with a current budget deficit of 12.4 billion in April compared with 8 billion a year earlier. But there is a pattern of initial borrowing releases being revised. In the latest data, for example, last year's borrowing has come down to 124.4 billion. Public borrowing is not down by a quarter from the peak, as ministers have been claiming (except as a percentage of GDP, where the fall is 26.5%) but it is down by 21%.