NEWS
11/04/2017 10:56 BST | Updated 11/04/2017 15:14 BST

Inflation Steady As Lower Air Fares Offset Higher Food And Clothing Prices

Inflation was unchanged in March as a jump in the cost of food and clothing was offset by falling flight prices.

The Office for National Statistics (ONS) said the Consumer Price Index (CPI) measure of inflation stood at 2.3% last month, unchanged from February's reading and in line with expectations.

The cost of living remains above the Bank of England's 2% target, putting pressure on the Bank's Monetary Policy Committee (MPC) to hike interest rates beyond 0.25% this year.

ONS deputy national statistician Jonathan Athow said: "Food, drink and clothing prices all rose in March.

"However, this is offset by air fares, which fell slightly but last year rose substantially thanks to the timing of Easter.

"The costs of raw materials and the price of manufactured goods leaving factories were both little changed, as falling fuel prices helped stem further rises."

 

 

The main downward pressure on the cost of living came from air fares, which fell by 3.9% between February and March after jumping by 22.9% last year.

The move was driven by the timing of Easter, with Easter Sunday falling on March 27 in 2016 and on April 16 this year. The cost of flying soars around the Easter holiday period.

Fuel pump prices were also dragging on CPI. Petrol dropped by 1p to 119.2p per litre between February and March and diesel fell by 1.1p to 122.1p per litre over the period.

Clothing and footwear price tags were also on the rise last month, climbing by 2% between February and March in contrast to a 1% climb last year.

The largest upward impact came from food and non-alcoholic beverages, climbing 0.4% between February and March after falling 0.6% over the same period in 2016.

The jump was driven at large by rising price tags for margarine and crisps.

On the hike in food prices, the ONS said: "For the past two years, the price changes for food in the UK remained well below the other countries.

"This could be partly due to the supermarket price wars in the UK over this period which resulted in a downward pressure on food prices.

"However, all countries are now seeing an increase in food prices as a result of the upward trend in global food prices."

The Consumer Price Index including owner occupiers' housing costs (CPIH) also hit 2.3% in March, the same rate as February's reading.

CPIH is the ONS's preferred measure of inflation, which includes costs associated with living in, maintaining and owning a home.

The Retail Price Index (RPI), a separate measure of inflation which includes council tax and mortgage interest payments, fell to 3.1% in March, down from 3.2% in February.

Sterling rose momentarily following the announcements before slipping back to a 0.1% drop against the US dollar at 1.241, and a 0.1% fall versus the euro at 1.170.

The CPI reading for March was the joint highest level since September 2013 and comes after inflation broke above the Bank's target in February for the first time in nearly three and a half years. 

The pound's plunge since the EU referendum vote is putting the squeeze on consumers as companies pass down soaring costs linked to the Brexit-hit pound. 

Separate ONS figures published earlier this month revealed that household savings rates hit a record low as consumers plundered their nest eggs to keep spending despite rising inflation. 

Members of the Bank's Financial Policy Committee (FPC) have also warned that a rapid rise in consumer debt fuelled by interest-free credit cards poses a risk to the UK financial system.

Nina Skero, managing economist at the Centre for Economics and Business Research (Cebr), said households will increasingly feel the pinch as wage growth struggles to keep pace with inflation. 

"Today's release confirms our expectations that 2017 will see the end of the consumer spending boom which has driven economic growth in recent years.

"With the prices of essentials such as housing costs, food and transport on the rise, less money will be left over for discretionary spending.

"This is especially true given that wage growth is unlikely to keep up with the elevated inflation levels."

Laurie Macfarlane, senior economist at the independent think tank New Economics Foundation, said: "Millions are struggling under record levels of debt. People's real incomes still haven't recovered from the financial crisis because of low wage growth and high living costs and those on low incomes are suffering the most.

"Today's figures are a stark reminder of the reality - rising living costs, debts, a sharp decrease in consumer spending and growing risk of stagflation.

"If sterling continues to fall during the course of Brexit negotiations, it will be households who pay the price."