Inflation slows slightly but food prices surge at fastest rate for 45 years

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UK inflation slowed last month on the back of lower petrol prices but remained in double figures as household budgets continue to come under pressure.

The Office for National Statistics (ONS) revealed that Consumer Prices Index (CPI) inflation fell to 10.1% in March from 10.4% in February.

Economists had forecast inflation would be 9.8% for the month.

The high level of inflation continues to keep pressure on the Bank of England regarding interest rates, with inflation still heavily above the 2% target rate.

The ONS revealed food prices increased by 19.1% year-on-year, the sharpest jump since August 1977.

Bread, cereals and fruit prices increased, while the impact of vegetable shortages also continued to weigh on inflation.

ECONOMY Inflation
(PA Graphics)

Restaurant and hotel prices also continued to rise, at 11.3%, but also saw inflation cool from the previous month.

Increases were partly offset by lower fuel costs, with petrol and diesel costs down 5.9% against the same month last year after prices had spiked following Russia’s invasion of Ukraine.

ONS chief economist Grant Fitzner said: “Inflation eased slightly in March, but remains at a high level.

“The main drivers of the decline were motor fuel prices and heating oil costs, both of which fell after sharp rises at the same time last year.

“Clothing, furniture and household goods prices increased, but more slowly than a year ago.”

ECONOMY Inflation
(PA Graphics)

The UK fiscal watchdog, the Office for Budget Responsibility (OBR), last month cut its forecasts for inflation, predicting CPI would end the year at around 2.9%

Chancellor Jeremy Hunt said: “These figures reaffirm exactly why we must continue with our efforts to drive down inflation so we can ease pressure on families and businesses.

“We are on track to do this – with the OBR forecasting we will halve inflation this year – and we’ll continue supporting people with cost-of-living support worth an average of £3,300 per household over this year and last, funded through windfall taxes on energy profits.”

Kitty Ussher, chief economist at the Institute of Directors, said: “Business remains extremely concerned by the rate of inflation and wants to see it under control.

“While it is a relief that the headline rate of inflation is now pointing downwards again, following the surprise rise last month, the Bank of England’s job is not yet done.”

Martin Beck, chief economic adviser to the EY Item Club, said: “The Club still thinks headline inflation will fall at pace this year, mainly reflecting strong base effects and falling wholesale energy prices, which should feed through into lower household bills from the summer.

“Less expensive energy will likely directly lower inflation, and by reducing businesses’ costs, should indirectly bear down on core and services inflation.

“However, the recent persistence of underlying price pressures poses a risk to just how quickly inflation will fall.”

Economists have cautioned that interest rates, which currently sit at 4.25%, could be increased further by the Bank of England in order to curb inflation.

Last month, Deutsche Bank economists predicted rates were most likely to peak at 4.25%, but following the latest smaller-than-expected drop in CPI inflation and continued wage inflation growth they have said they are now guiding towards a peak of 4.75% interest rates.

Meanwhile, economists at Investec said they are pricing in “75 basis points” of further increases by November, which would take rates to 5%.

The latest data also showed the CPI measure of inflation including housing costs (CPIH) dipped to 8.9% for March from 9.2% in February, while the Retail Prices Index (RPI) slowed to 13.5% from 13.8%.

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