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Inflation remains unchanged at 2.3% in March

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Written by: Paloma Kubiak
11/04/2017
UK inflation remained steady at 2.3% in March, exceeding the Bank of England’s target for the second month in a row, according to official figures.

Rising prices of food, alcohol, tobacco and clothing were offset by falling air fares and petrol costs, according to the Office for National Statistics (ONS).

The inflation rate is the highest since September 2013. It is the second consecutive month the rate has exceeded the Bank of England’s 2% inflation target.

This is also the second inflation report to use CPIH instead of CPI as a measure of how much prices are rising. The new measure includes costs associated with owning, maintaining and living in your own home, and council tax. However, CPI also remained stable at 2.3% in March.

Maike Currie, investment director for personal investing at Fidelity International, said the Easter break falling later this year compared to 2016 kept price rises in check but that the ‘Easter effect’ will kick in this April, so inflation will likely rise when figures are released next month.

She noted that retail sales figures from the British Retail Consortium, released overnight, showed that the rise in inflation is starting to bite, with non-food high street sales suffering the worst fall in nearly six years.

“With price rises outstripping wages, we are getting progressively poorer each month,” she said.

Currie said that unsurprisingly, consumers are choosing to focus their spending on essential items like food and fuel.

‘Inflationary squeeze is coming’

Laith Khalaf, senior analyst at Hargreaves Lansdown, said inflation outpacing wages and interest rates spells trouble for households and cash savers.

He said: “The inflationary squeeze that’s coming is going to mean consumers have to spend more at the check outs and petrol pumps, and that reduces their capacity to fund discretionary spending. It also reduces people’s propensity to save, which is particularly worrying at a time when the UK’s savings ratio is at its lowest level since the 1960s, and retirement is costlier than ever because of gains in life expectancy.”

He said that in March, food inflation really took off, which suggests supermarkets are starting to pass rising import costs onto consumers.

“The inflation we have got at the moment is a bit peculiar, and is actually disinflationary because it stems from a weaker currency and higher commodity prices, without an accompanying rise in UK wages so far.

“So if you’re looking for clues as to when the Bank of England might raise interest rates, right now you might as well look at pay growth or consumer spending as CPI, because that is what the central bank is monitoring for signs of inflation in the underlying economy.”

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