It’s only when inflation sits somewhere between 2% and 3% that the governor of the Bank of England is not required to give an explanation to the chancellor of what the hell is going on. So it’s good news today for Mervyn King, who can sit easy knowing that inflation is not only within the requisite parameters, but that the trend in the last few inflation reports from the ONS shows that it is falling. The rate of inflation (consumer prices index) in May dropped to 2.8%, according to the latest figures.
This marks a 0.2% drop in CPI from the 3% in April, and is supported by a corresponding fall in the retail prices index (RPI) measure, from 3.5% in March to 3.1% in May.
So why is this such good news? Well, it can be largely attributed to the combined effects of falling food, energy and commodities prices throughout 2011. But some argue that the figures can be misleading because energy prices regularly fall as the weather gets warmer. In the spring and summer months, the cost of living is simply less because the heating isn’t on all the time. But this particular CPI drop was unexpected: the consensus among analysts was that inflation would stay at 3% for May.
But whilst this is a welcome fluctuation for the Great British wallet, trouble continues to brew across the Channel, and the newly convened G20 summit in Mexico is acutely aware that any marginal economic improvements hang in the balance. Even the news that Greece had effectively elected its pro-bailout New Democracy party on Sunday was not enough to buoy markets for more than a few hours. This is partly because the party’s leader Antonis Samaras has hinted at plans to ‘amend’ the bailout lending agreement.
The G20, which has convened at the Los Cabos resort in Mexico, will be considering other economic worries such as the slow down of India’s recently booming economy, as well as how to mitigate the spread of the debt-crisis contagion from Europe into other economies.
Let’s hope, at last, they come up with some answers. But we reckon its unlikely the ‘silver bullet’ solution will be concocted during a Los Cabos siesta…