Inflation steady as lower air fares offset higher food and clothing prices

Posted April 13, 2017

Amid growing fears of a spending squeeze as a result of price rises matching wage growth in February, the Office for National Statistics (ONS) reported no change on the Consumer Price Index (CPI) measure of inflation last month.

ONS deputy national statistician Jonathan Athow said inflation remained steady in March because food, drink and clothing prices all went up, while air fares dropped slightly compared to a year ago due to the timing of Easter.

Including bonuses, average wages rose 2.3%, accelerating from 2.2% a month before and on a single month basis, annual growth in average weekly earnings picked up from 2% in January to 2.9% in February.

China's producer prices rose for the seventh straight month in March from a year earlier. This year's target has been left unchanged.

The slowing pace of remonetisation, or pumping new Rs 500 and Rs 2,000 notes into circulation, during March to replace the scrapped Rs 500 and Rs 1,000 notes in November, helped inflation to stay within 4% in the financial year ending March 2017. Prices for local goods went up by 7.3 per cent, while imported commodities rose 9.1 per cent and those of fresh products increased by 17.3 percent during the period under review.

This was in part attributed to both sterling and oil prices remaining flat over the month, but economists warn that the later date of Easter this year has distorted the figures, by reducing costs. China cut gasoline and diesel retail prices late last month by the most so far this year.

The figures mean that many people's take home pay is going up by less than price increases for essentials like food and clothes.

While the Bank of England sees inflation peaking at about 2.8 per cent in the first half of 2018 before falling back, some forecasters predict it could creep above 3 per cent.

Sterling crept up by around 0.14 per cent against the euro to 1.1731 following the news, and also lifted to 1.2432 against the USA dollar.

Experts, including the Bank of England, reckon inflation could hit three per cent this year.

However, policymaker Kristin Forbes expressed concern about rising inflation and voted to raise rates.

However, Samuel Tombs, chief United Kingdom economist at Pantheon Macroeconomics, said: "Households are being caught in a flawless storm of rising inflation and slowing labour income growth".

NBS' Mr Sheng said the figures were affected by a drop in food prices, while prices for medical care, housing, education and entertainment, and transport and communication have increased. The U.K.'s economic growth relies heavily on domestic demand, which is likely to falter as Britons' wages struggle to keep up with price increases.

Wage growth has slipped below the rate of inflation, a development that threatens damage to living standards and the wider economy through an erosion of household spending power.