U.K. Inflation Rise Takes Easter Break as Rate Stays at 2.3%By
Economists say pause is temporary, predict faster inflation
Airfares drop due to timing of Easter holiday this year
U.K. inflation’s upward trajectory paused in March as the timing of Easter led to a drop in airfares, offsetting increases in the price of food and clothing.
While the rate was unchanged compared with February at 2.3 percent, that’s still the highest since 2013 and up from just 0.5 percent a year ago. The increase over the past year reflects higher fuel costs and the pound’s decline since the Brexit vote in June.
Inflation is already above the Bank of England’s 2 percent target and is forecast to accelerate further, squeezing Britons’ finances as wage growth remains week. That’s splitting officials on the BOE’s Monetary Policy Committee. Kristin Forbes voted for an interest-rate rise last month and some of her colleagues said they’re close to following her.
While March’s data may be a temporary respite, it still showed price gains were faster than officials expected, said Samuel Tombs, an economist at Pantheon Macroeconomics.
“The MPC will continue to be surprised by how quickly higher import prices feed through to consumers,” Tombs said. “Further upside inflation surprises might persuade more members on the MPC to vote to hike rates soon. Nonetheless, with wage growth showing no sign yet of following inflation higher, we continue to expect a majority of MPC members to vote to keep bank rate” on hold this year, he said.
The pound was little changed against the dollar and was at $1.2414 as of 10:16 a.m. London time.
On the month, consumer prices rose 0.4 percent, the Office for National Statistics said. Airfares fell 4 percent, compared with a 23 percent jump a year earlier, when the Easter holiday fell in March.
The financial squeeze on Britons appears to be hitting spending power, with the British Retail Consortium reporting on Tuesday that retail sales fell the most in six years in the first quarter.
With wage growth forecast to have slowed to 2.1 percent in the past three months, the situation for households may worsen. The BOE sees inflation hitting close to 3 percent by the end of the year.
The inflation and wage numbers reflect the two sides of the debate on the nine-member MPC, with the majority arguing they don’t see a need to tighten policy just yet because there’s little sign of domestic price pressures.
While prices for food and drink rose an annual 1.2 percent, the most in three years, core inflation, which excludes food and energy, slowed to 1.8 percent in March from 2 percent.
The ONS also reported that factory-gate price inflation was at 3.6 percent in March, down from 3.7 percent the previous month.
While the annual gain in input costs slowed, it’s still running close to 18 percent, with import costs up more than 17 percent. The cooling of the annual rate of change reflects sterling’s relative stability in recent months plus base effects.
— With assistance by Mark Evans, Harumi Ichikura, and Scott Hamilton