Chart of the day: Inflation falls to 3 per cent



Inflation has dropped again. CPI now stands at 3 per cent meaning that for the first time in over two years, Melvyn King won't have to write a letter to the Chancellor explaining why he has missed the Bank of England's target of within one point of 2 per cent.

Meanwhile, core CPI fell to 2.1 per cent, its lowest in over two years.

Large downward effects came from transport, alcoholic beverages, tobacco, clothing and footwear. Smaller upward pressures came from personal transport equipment, restaurants & hotels and rents.

The all-items retail prices index (RPI), which measures the change in the cost of a basket of retail goods and services, reached 242.5 in April (based on January 1987=100), up from 240.8 in March.

The CPI all goods index is 119.0, up from 118.7 in March, while the CPI all services index is 127.7, up from 126.5.

In the recent inflation report, the Bank of England (BoE) governor, Mervyn King, said that CPI inflation would remain above 2 per cent for next two years.

The Financial Times quoted Jason Conibear, director at the forex specialists Cambridge Mercantile Group:

That inflation has nudged down will be of great relief to the Bank of England but it’s a meagre ray of light in a darkening economic environment. Last week, the Bank of England said inflation would be hitting target a lot later than expected and there’s no doubt we can expect a bumpy ride on the way down.