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A pause in March.
The UK’s annual inflation rate stabilised at more than three-year high of 2.3 per cent in March as the later timing of Easter helped push down airfare costs and keep a lid on the economy’s recent inflationary upsurge.
Annual consumer price growth breached the Bank of England’s 2 per cent target for the first time since 2013 in February, with the BoE expecting price growth to accelerate above 3 per cent over the coming year.
March is likely to be a blip in Britain’s inflation trajectory, with prices pushed up by food and the continuing effects of the drop in sterling after the Brexit vote.
Here’s what UK economists make of the numbers.
Ruth Gregory at Capital Economics notes last month’s numbers are likely to be a “statistical quirk” due to the later timing of Easter this year. Inflation is likely to be back on the up next month following the “temporary respite”, she adds:
Prices in March last year were boosted by the fact that Easter fell in that month, while Easter occurs later this year (on 16th April). As such, airfares inflation fell by a monthly 3.9%, compared with a 22.9% rise in the same month a year ago, knocking 0.2pp off CPI inflation in March.
James Smith at ING stresses the impact of higher food prices in the inflation basket as supermarkets emerge from years of discounting wars to hike prices after the pound’s post-Brexit drop.
“At 1.2 per cent, the annual rate of growth in food and non-alcoholic drink prices is the highest since early 2014″, said Mr Smith. Meanwhile, air fares slumped 23 per cent year on year.
Elizabeth Martins at HSBC highlights a broader inflationary dip across Europe in March but thinks “these seasonal effects are likely to go into reverse next month”:
Just as the Easter effect kept a lid on March inflation, it will increase the April reading, particularly if the increase in oil prices over the last couple of weeks is sustained. So inflation could look quite punchy in next month’s reading. Regardless, we still think the Bank of England will remain on hold
The higher cost of living should squeeze Britain’s bouyant consumers in the months to come, as economists expect wage growth is unlikely to keep up with the pace of inflation later this year.
“2017 will see the end of the consumer spending boom which has driven economic growth in recent years. With the prices of essentials such as housing costs, food and transport on the rise, less money will be left over for discretionary spending”, said Nina Skero at the Centre for Economists & Business Research.
Economists will be turning their attention to the latest set of wage data released tomorrow (09.30 BST).