British inflation rate rises to 4-year high of 2.9 pct

UK Consumer Price Index (CPI) data for the month of May showed annual inflation climbing to a near four-year high.

"In terms of industries, 14 out of the 23 industry groups in the manufacturing sector have shown positive growth during the month of April 2017 as compared to the corresponding month of the previous year", the CSO said in a statement.

Food inflation is rising quickly. "Lower inflation and unexciting growth print raises the risk of a rate cut in the RBI's August monetary policy review", HSBC said in a note.

CPI inflation in May is at the lower end of the RBI's projected headline inflation band of 2-3.5 per cent in the first half the current fiscal.

Ben Brettell, senior economist at Hargreaves Lansdown says that economists had expected inflation to remain steady at 2.7 per cent.

The policy repo rate has been on hold since October when the RBI lowered it by 25 basis points to 6.25 percent.

"The concern for retailers is that weak consumer confidence, amid political uncertainty and falling real wages, will make shoppers more price conscious, at a time when many brands are looking to pass on cost rises to their customers in a bid to protect margins". According to number crunching by Retirement Advantage, UK households will have to find an additional £21.7 billion this year if they are to maintain last year's standard of living. This was the highest inflation since 2013.

Further falls in prices could compound their woes and fuel discontent that has triggered protests in the big agrarian states of Maharashtra and Madhya Pradesh, where police shot dead five protesting farmers last week. Inflation is seen unchanged at 2.7 percent in May.

The ONS said excluding oil prices and other volatile components such as food, core consumer price inflation rose to 2.6% compared with economists' expectations of 2.4%.

"We do not expect a BoE rate hike until there is much greater clarity on the outlook". April's data was revised from an initial 4.1% rise.

The Retail Price Index (RPI), a separate measure of inflation which includes council tax and mortgage interest payments, reached 3.7 per cent last month, up from 3.5 per cent in April.

While forecast of a normal monsoon this year is good news for consumers as it means better yield and lower food prices, lower inflation has its own dangers, warn experts.

He said: "With so little evidence of domestic inflation pressures, and with most inflation coming from "transient" and exogenous forces, Mark Carney will look through CPI at 3%, 4% even 5% perhaps".

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