Inflation hits highest level in more than three years
The Office for National Statistics (ONS) said the consumer prices index (CPI) measure of inflation reached 2.7 per cent in April, the highest rate since September 2013.
The rise keeps the rate above the Bank of England’s 2 per cent target and comes after CPI paused at 2.3 per cent in February and March.
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The Bank said in its inflation report on Thursday that CPI would peak at 3 per cent later this year, as the pound’s slump since the Brexit vote causes price tags on everyday items to tick higher.
Royal Bank of Scotland chief economist Stephen Boyle said: “Rising inflation is the major economic story of 2017. While it is by no means a return to the bad old days of the 1970s, when inflation reached 27 per cent, or even the 1990s, when it averaged over 3 per cent, higher inflation matters. Wages are growing by around 2% year-on-year, which means that 2.7% inflation is eroding our spending power.
“As a result, consumers’ spending will be under pressure, especially for discretionary items like leisure. Weaker consumption means slower growth.”
He added: “However, there is an upside to the weaker pound and its inflationary impact: our exports become more competitive in overseas markets. That boost, along with the pick-up in growth in Europe will mean stronger export performance in 2017, partly offsetting weaker domestic demand.”
The main upward impact on the cost of living came from air fares, which jumped by 18.6 per cent month-on-month in April due to the impact of the Easter holidays. Airline prices rise sharply around the Easter break, which fell on 16 April this year rather than 27 March in 2016.
The price of clothes also rose to the highest level for six years, climbing by 1.1 per cent between March and April after falling by 0.4 per cent a year ago.
The ONS said the timing of when shops put items on sale may have caused prices to jump, with the number of discounted items falling between March and April this year after rising slightly a year ago.
Food prices also became more expensive in April, rising 0.2 per cent month-on-month after coming in flat last year.
The way the ONS measures prices means Npower and Scottish Power’s decision to increase gas and electricity prices in March also had an upward impact on the headline rate.
The overall price of electricity rose by 2.5 per cent month-on-month after falling by 0.2 per cent a year ago, but the rise was partly offset by a cap placed on prepayment meter charges. Despite the price hikes from some utility companies, gas prices dropped by 0.6 per cent over the period.
The downward pressure on the cost of living came from fuel pump prices, with petrol falling by 1.8p to 117.4p a litre and diesel also dropping by 1.8p to 120.3p.
The CPI including owner occupiers’ housing costs (CPIH) hit its highest level since June 2013 at 2.6 per cent in April, up from 2.3 per cent in March. CPIH is the ONS’s preferred measure of inflation, which includes costs associated with living in, maintaining and owning a home.
The retail prices index, a separate measure of inflation that includes council tax and mortgage interest payments, reached 3.5 per cent last month, up from 3.1 per cent in March.
Despite inflation running well above its target, Boyle said he did not expect the Bank of England to raise interest rates above their current level of 0.25 per cent “any time soon”.
“It will be content to regard sterling-induced inflation as being a temporary phenomenon as long as our expectations of future inflation remain consistent with the 2 per cent target and wage growth does not rise unduly. Both of these conditions are being satisfied at present.”