Consumer squeeze continues as inflation edges higher

A FALL in the number of supermarket promotions saw the rate of inflation unexpectedly rise last month, official figures revealed today, piling more pressure on hard-pressed households.

The Consumer Price Index (CPI) rate of inflation edged upwards to 3.5% in March, from 3.4% in February, the Office for National Statistics (ONS) said, halting five months of declines.

Food and non-alcoholic drinks fell 0.5% on the month but this compared with a 1.4% fall last year when supermarkets and other retailers offered a wider range of sales and special offers.

The rise in inflation will rattle Bank of England Governor Sir Mervyn King and his colleagues, who previously predicted that CPI would fall swiftly back throughout this year to the Government’s 2% target.

Households were squeezed by high prices and sluggish wage growth throughout 2011 and some relief from the high cost of living was expected this year.

The bank may now be less inclined to pump more money into the economy through its quantitative easing programme if inflation continues to remain above target.

The average cost of petrol and diesel at the pump hit a record high in March, up to �1.38 and �1.46 a litre respectively. However, the ONS said the rise in fuel and lubricants was similar to last year so had little impact on the rise in inflation.

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The biggest upward pressure came from the softer drop in food bills, a smaller fall in recreation and culture costs and higher clothing and footwear prices.

Fruit, bread and cereals and meat saw prices rise in March, compared with falls a year ago, which acted as a drag on the overall food category.

The softer fall in prices follow a fierce price war between the supermarkets, as Tesco introduced its Big Price Drop, Sainsbury’s fought back with its Brand Match scheme and Asda offered its Price Guarantee.

But Tesco, which reports annual results tomorrow, admitted its �500million scheme had been a flop after dismal trade over Christmas continued into the new year.

Clothing and footwear prices were up 2.2%, driven by women’s outerwear, while recreation and culture saw resistance from higher charges for toys and recording media.

There was some downward pressure in March as big six energy suppliers Scottish Power and EON introduced cuts to their tariffs.

Housing and household services costs, which includes electricity and gas, subsequently dropped 0.2% on the month.

Elsewhere, transport costs fell on the month as second-hand car prices fell by 0.1%, compared with a 1.5% rise last year.

Alternative measures of inflation did fall, however, with the retail price index dropping to 3.6% in March from 3.7% in February.

A spokesman for the Treasury said: “Inflation has fallen by a third since September. Most market commentators expect inflation to continue falling later this year, providing ongoing relief for family budgets.”