U.K. Economy Watchers Look to the Moon to Understand Inflation

  • Consumer-price growth distorted by late timing of Easter
  • Airfares declined last month without boost from vacationers

For economists scrutinizing the U.K.’s every data point as it moves toward Brexit, even the phases of the moon are proving significant.

While inflation’s upward trajectory paused in March, easing pressure on households budgets and Bank of England policy makers alike, the Office for National Statistics said that the unusually late timing of Easter was distorting the figures. The religious holiday changes date each year based on the timing of the ecclesiastical full moon following the vernal equinox.

In practice, that means that this year the vacation falls in April, rather than March, delaying the usual boost to travel costs during school and workplace closures. Airfares slipped 4 percent last month, compared with a 23 percent jump in March 2016, offsetting increases in food and clothing prices.

“The recent run of escalating inflation may have paused for now, but that has more to do with the timing of Easter than any change in the strong upward pressure on prices,” said Stephen Clarke, economic analyst at think-tank the Resolution Foundation.

Even with its acceleration stalled, the inflation rate of 2.3 percent is still the highest since 2013, bolstered by higher fuel costs and the pound’s slump since Britain’s June vote to leave the European Union. Prices for food and drink rose an annual 1.2 percent, the most in three years.

Price pressures are also elevated for industry. While the annual gain in input costs slowed last month, it’s still running close to 18 percent, with import costs up more than 17 percent.

BOE policy makers -- who have already seen CPI climb above their 2 percent target -- have said they have limited tolerance for price acceleration. The majority so far have argued they don’t see a need to tighten policy just yet because there’s little sign of domestic price pressures.

Labor market data on Wednesday may reinforce that view. It’s forecast to show wage growth slowed to 2.1 percent in the past three months, which may weigh on the household spending that has helped fuel the U.K. economy since the financial crisis.

“With further price rises expected later this year, and no sign yet of wage settlements responding, this pay squeeze looks set to be deeper and longer than expected,” Clarke said.

— With assistance by Jill Ward, and Scott Hamilton

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