Fuel price dip helps keep inflation steady at 2.3% in March

Joy Montgomery
April 13, 2017

Official figures revealed that the consumer price index (CPI) measure of inflation stood at 2.3 per cent last month, in line with February's outcome after a sharp rise from January's reading of 1.8 per cent.

However, the cost of living is expected to rise in the coming months, putting pressure on the Bank of England's Monetary Policy Committee (MPC) to raise interest rates beyond 0.25 per cent. But after taking into account inflation, total pay growth rose just 0.2 percent and excluding bonuses it inched up just 0.1 percent in the three months to February.

The 2.3 per cent level matched consensus expectations, and resulted from transport cost price growth falling to 0.54 percentage points from 0.8 a month earlier - offsetting increases in housing and food inflation.

With the Bank of England predicting inflation will hit close to 3 percent by the end of the year, real earnings are about to turn negative for most workers.

Nikhil Gupta, Madhurmi Chowdary analysts at Motilal Oswal had said, "It implies that CPI inflation averaged 4.6% in FY17 YTD (until February), as against 4.9% in the year-ago period".

"This could be partly due to the supermarket price wars in the United Kingdom over this period which resulted in a downward pressure on food prices".

Nina Skero, managing economist at the Centre for Economics and Business Research (Cebr), said households will increasingly feel the pinch as wage growth struggles to keep up with inflation.

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Inflation has accelerated in Britain in recent months, pushed up by a weakening of the pound since last year's decision by voters to leave the European Union, and by the rise in oil prices which has fuelled inflation in other countries too. The slowdown may already be happening, with the increase in employment in the latest period falling well short of forecasts.

China's inflation rose marginally on non-food prices in March, while factory gate inflation moderated as commodity prices weakened notably.

"It is very unlikely wages will be able to keep pace, leading to a squeeze in the spending power of United Kingdom shoppers".

Most price increases can be explained by the weakness of sterling since the Brexit vote which has made wholesale prices more expensive.

"Without government action, another living standards crisis is on the cards".

But Dr Howard Archer, chief United Kingdom and European economist at IHS Markit, said: "Deteriorating consumer purchasing power and likely increasing business uncertainties and caution over Brexit are expected to take a mounting toll on growth and employment".

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