First inflation rise in nearly a year

Picture: TSPL
Picture: TSPL
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Inflation rose for the first time in almost a year last month, stalling hopes for a pick-up in real term wages.

The Consumer Prices Index (CPI) measure of inflation ticked up to 1.8 per cent in April after hitting a four-year low of 1.6 per cent the month before, the Office for National Statistics (ONS) said. With latest figures showing annual wage increases stuck at 1.7 per cent, a hoped-for sustained period of pay rising faster than the cost of living has yet to materialise.

The widely-expected inflation figure, the first rise in ten months, still means it has been at or below the Bank of England’s 2 per cent target for five months in succession – with the rate expected to remain low for some time. The apparent hiccup in the trend of falling inflation comes after the previous month’s figure was hailed as “welcome news for families” by Chancellor George Osborne, below.

Earnings have not consistently been improving at a higher rate than the cost of living since 2008 but appear to have caught up in recent months. A hoped-for acceleration in real-term wages would provide a boost for the coalition amid Labour claims that the recovery has yet to improve the lives of ordinary voters. But the latest figures suggest that this remains stuck in the starting blocks.

CPI was driven higher by air and sea fares due to the timing of Easter, which fell in April this year, as well as petrol prices, which were flat compared to a 2.1p per litre month-on-month fall in 2013.

Experts at Capital Economics said the rise looked likely to be a “blip” almost entirely reflecting the timing of Easter. Capital’s UK economist Samuel Tombs said the trend should continue to be down over the rest of 2014 as commodity prices stabilise, import prices fall and supermarkets and other retailers step up competition.

He said: “We continue to think that CPI inflation should ease to as low as 1 per cent by the end of this year and remain comfortably below the 2 per cent target in 2015.”

But James Knightley, of ING Bank, said there were tentative signs of wages picking up, with momentum building over the coming year and good indications of hiring intentions. “In an environment of firm economic growth and strengthening corporate pricing power, we feel that CPI will gradually grind higher over coming quarters,” he said.

Ben Brettell, economics editor at stockbrokers Hargreaves Lansdown, said: “Inflation at 1.8 per cent is higher than last week’s wage growth figure of 1.7 per cent, but I’m not sure this adds much to the so-called ‘cost of living crisis’ debate.”

The Bank of England said last week that it expected inflation to remain at or below its 2 per cent target for the next few years, easing pressure on it to hike interest rates.

A Treasury spokesman said yesterday: “Lower inflation and rising job numbers show that the government’s long-term plan is working and Britain is coming back.”