Your Money

Consumer price inflation stood still in March despite economist expectations for a small fall

UK inflation defied economist expectations in March, according to ONS data released Tuesday, when it held steady with the level recorded in the previous month.

The consumer price index reading came in at 2.3% against expectations for a modest fall to 2.2%.

Among the biggest contributors to the result were bigger than expected increases in the food, alcohol, tobacco and clothing segments. A sharp rise in transport costs and the the prices paid for recreation and cultural activities also played a part.

Core inflation, which strips out the effect of changes in food and energy prices, fell by 20 basis points during the recent month to an annual rate of 1.8%.

Tuesday’s data means that headline inflation has remained above the Bank of England target for the second month running.

However, given that a meaningful portion of price increases are the result of a fall in the value of sterling, the Bank of England is unlikely to be compelled into action by it.

The circumstances around Britain’s exit from the ERM in the early 1990s show that tweaks to interest rates that are aimed purely at manipulating the currency have had a tendency to backfire on the BoE in the past.

Tuesday’s number also puts headline inflation marginally ahead of the rate of wage growth, which was 2.2% on an annual basis in the three months to the end of January.

Some economists have forecast that with inflation now over and above the rate of nominal wage growth, consumers could soon begin to reduce their spending.

Quite apart from the fact that this assumes the majority of consumers have sufficient financial literacy and foresight to take such decisions, recent history might beg to differ.

Wage growth remained negative in real terms for almost all of the six years between 2009 and late 2015 yet consumer spending and economic growth continued to recover from their post crisis slump at rates that were in line with, if not ahead of the rest of the developed world.

Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Brexit.money was created with the aim of providing up-to-date information on Brexit and how it effects everyone’s finances. From your everyday expenses and the money in your pocket, to investments, stocks and shares and company takeovers.

Copyright © 2016 Onestone Media Ltd.

To Top