Price rises have unexpectedly eased. The Consumer Price Index rose by just 2.6 per cent in March, down from 2.8 per cent the month before and slightly lower than analysts’ expectations of 2.7 per cent. The figures, just published by the Office for National Statistics, show that the slowdown was driven by falling fuel costs and flat food prices compared to a year ago.
Most of the fall was due to lower prices at the pumps, with both petrol and diesel down by 1.6p last month. Meanwhile, prices in some sectors continued to rise – most notably in education, where costs jumped by 7.5 per cent year-on-year, largely due to the introduction of VAT on private school fees.
If this downward trend in the inflation rate continues, it's good news for both the Chancellor Rachel Reeves and the Bank of England. Markets now expect the Bank to cut interest rates more aggressively to support economic growth, but yesterday’s wage data showed strong and persistent pay rises across the economy – something the Bank’s rate-setters have flagged as a potential barrier to loosening monetary policy. However, today’s inflation figures may give them more confidence to increase the speed and rate of those cuts.
Will inflation keep falling? Not in the short term. April’s figures are expected to reflect the impact of the Chancellor’s £25 billion raid on National Insurance, the increase to the minimum wage, and the effect of ‘Terrible Tuesday’, when a raft of bills and taxes were hiked. Taken together, most economists expect inflation to nudge back above 3 per cent.
So while March's data offers some relief, the inflationary tiger has not yet returned to the jungle. Policymakers may feel a touch more breathing room – but with April’s pressures looming, the path to the Bank's 2 per cent target still looks bumpy.
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