Birmingham business leaders have welcomed a surprise drop in consumer inflation to 2.8 per cent in May.
The Office for National Statistics revealed that the Consumer Prices Index (CPI) measure of inflation fell to 2.8 per cent in May, from three per cent in April, the lowest level since November 2009.
And the headline rate of Retail Prices Index (RPI) inflation fell to 3.1 per cent in May, from 3.5 per cent in April.
The figures were largely due to a fall in food and fuel prices but Birmingham Chamber of Commerce warned that restoring inflation to the Bank of England’s target of two per cent was proving more difficult than anticipated.
President Michael Ward said: “While inflation has fallen back significantly since last September’s high of 5.2 per cent, it is likely to remain above two per cent for the next 12 months.
“The drop is largely credited to fuel and food prices coming down so it is vital that the Bank of England recognises the importance of low interest rates in allowing businesses to remain competitive through this period of high inflation.
“We urge the Monetary Policy Committee to keep interest rates at their current levels for the foreseeable future.”
The Bank of England’s has held interest rates at 0.5 per cent since March 2009.
The decline in inflation was driven by a sharp drop in petrol pump prices, as the average petrol price fell by 4.5p per litre between April and May to stand at 137.1p. Last year, the average petrol price rose 2p to 136.3p.
Inflation has fallen from 5.2 per cent last September due to the waning impact of the VAT hike at the start of 2011 and falling energy, food and commodity prices, easing pressure on squeezed household incomes.