U.K. Inflation Rate Hits 15-Month High on Early Easter Boost

  • Prices pushed up by surge in air fares, higher clothing costs
  • Core inflation accelerates to 1.5%, most since October 2014

What’s Behind U.K.’s Rising Inflation Rate?

U.K. inflation accelerated to a 15-month high in March as an early Easter boosted air fares and clothing prices increased.

Consumer prices rose 0.5 percent from a year earlier, the fastest pace since December 2014, the Office for National Statistics in London said on Tuesday. That exceeded the 0.4 percent median estimate in a Bloomberg survey of economists. Core inflation, which excludes volatile food and energy prices, quickened to 1.5 percent, the most since October 2014.

While inflation remains well below the Bank of England’s 2 percent target, the figures suggest it is picking up after almost a year of hovering around zero. Monetary Policy Committee officials are expected to keep the benchmark interest rate at a record low until the first quarter of 2017, the median forecast in a Bloomberg survey shows. Their latest decision will be announced on Thursday.

“They’ll be encouraged inflation has picked up even if it’s noisy,” David Owen, an economist at Jefferies International Ltd., said in an interview with Francine Lacqua on Bloomberg Television. Still, “it’s going to be difficult for the MPC to raise rates. The first rate rise in the U.K. will probably be delayed into next year.”

The pound rose after the data and was trading at $1.4313 as of 10:56 a.m. London time, up 0.5 percent from Monday.

Air Fares, Clothing

Upward pressure on inflation last month came from transport costs as air fares rose 23 percent on the month compared with 2.7 percent in March 2015. This reflected the timing of the four-day Easter break, which occurred late last month but in early April 2015.

There was also pressure from clothing and footwear, which rose 1 percent in March after falling in the same month last year.

This was partly offset by a drop in food prices, while motor-fuel costs rose by less than they did a year earlier.

Consumer prices rose 0.4 percent in March from February. In the first quarter, they climbed 0.35 percent from a year earlier, below the 0.44 percent the BOE predicted in its latest forecasts in February. Services-cost inflation increased to 2.8 percent in March on an annual basis, while goods prices fell 1.6 percent on the year.

House Prices

Another measure of inflation, the retail prices index, accelerated to 1.6 percent, the most since December 2014, from 1.3 percent in February. The index is used among other things to calculate interest-payments on inflation-protected gilts.

A separate report showed the cost of goods leaving factory gates rose 0.3 percent in March from February and fell 0.9 percent on the year. Input costs increased 2 percent, leaving them 6.5 percent lower than a year earlier.

House-price growth slowed to an annual 7.6 percent in February from 7.9 percent in January. In London, the pace eased to 9.7 percent from 10.8 percent as prices dropped almost 3 percent from a record in January.

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