Inflation to remain stubbornly high

A renewed pick-up in price hikes will underline the pressure on consumers on Tuesday as rising fuel and air fares keep inflation stubbornly high.

Consumer Prices Index (CPI) inflation is expected to have risen to 2.6% in May from a better-than-expected 2.4% in April.

The squeeze on household budgets is expected to continue in the coming months, with inflation set to hit a summer peak of around 3%.

Economists believe the Office for National Statistics (ONS) will buck a recent trend of upbeat economic data by saying inflation rose further above the Bank of England's 2% target in May.

The extent of April's softening of price rises surprised economists, and was down steeply from 2.8% in March. But experts believe higher tuition fees and rising gas, electricity and water bills will heap further pain on consumers during the summer, to lift inflation towards a 3% peak.

Philip Shaw, chief economist at Investec Securities, forecasts a "rebound" in inflation in May. He expects rising petrol and diesel prices, plus higher air fares due to the early timing of Easter, to resume the upward trend for inflation.

Howard Archer, chief UK and European economist at IHS Global Insight, said: "Consumer price inflation is likely to move modestly higher over the next few months." However, economists believe the squeeze on households from rising prices will ease after the summer, as inflationary pressures from utility bill hikes and higher food prices abate.

Dr Archer added: "It is very possible that inflation will fall earlier and more quickly than previously anticipated. There is a very real chance that inflation could finally get down to the promised land of 2% early in 2015. The fact that consumer price inflation looks likely to peak at a markedly lower level over the summer than had previously seemed likely is good news for growth prospects."

Shoppers were handed some welcome news on inflation recently when the British Retail Consortium (BRC) said food price rises slowed to their lowest level in almost three years in May as retailers lured in cash-strapped shoppers with promotions and vouchers.

Food prices rose by 2.4% in May on a year earlier, down from 2.9% in April and the lowest rate since June 2010, the BRC said. Prices of clothing, footwear, electrical goods, furniture and carpets all fell in May, to drag non-food prices down by 1.5% year-on-year. That meant the wider measure of shop price inflation fell by 0.1% in May, the first overall deflation since September 2009.

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