UK: Rate of CPI inflation remains unchanged – at least for now

Inflation is expected to reach 3.5% by the summer

Inflation is expected to reach 3.5% by the summer - Credit: PA

SHARP increases in car insurance premiums piled further pressure on household budgets last month as inflation remained at its highest level since last May.

The Office for National Statistics (ONS) said Consumer Prices Index (CPI) inflation stayed at 2.8% in March after a 5.8% increase in the cost of transport insurance offset slower rises in diesel and petrol prices.

While inflation remained unchanged on February, there are fears over a summer of financial pain for consumers ahead as economists predict CPI to hit 3.5% over the next few months.

The ONS said price rises for digital cameras, books and DVDs also kept CPI stubbornly above target last month, while the recent round of energy bill increases added to inflationary pressures.

But inflation eased at the fuel pumps as petrol prices rose by 2.2p a litre against 3.3p a litre a year earlier whhile diesel increased by 1.9p a litre compared with 2.6p last March.


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Furniture prices also rose at a slower pace than a year ago, while cheaper vodka and lager helped see a 0.5% fall in alcoholic drink and tobacco costs.

However, this month’s unchanged rate of inflation is set to be a temporary reprieve as food inflation, higher gas and electricity tariffs and upcoming water bill rises are expected to send CPI up even further.

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Inflation has remained above the Government’s 2% target since December 2009, pushed up in recent months by the weakness of the pound at the start of the year.

The figures come ahead of minutes due tomorrow of the Bank of England’s April interest rates meeting, which is expected to reveal another close call among policymakers.

The bank voted to hold its quantitative easing (QE) programme at £375 billion this month. Experts predict that Bank Governor Sir Mervyn King and fellow rate-setters David Miles and Paul Fisher were once more outvoted in calling for another £25billion of QE amid signs of life in the economy.

Better-than-expected figures from retailers, manufacturers and services firms have suggested Britain has narrowly avoided a triple dip recession, with most economists expecting growth of 0.1% in the first quarter.

The bank has already said it stands ready to take further action to boost recovery efforts, but it is expected to hold off from more QE until next month’s inflation report or even the arrival of new Bank Governor Mark Carney in July.

Today’s figures from the ONS also showed that Retail Prices Index (RPI) inflation, which includes housing costs, rose to 3.3% in March from 3.2% in February.

Recently launched experimental measures of inflation – CPIH, including housing costs, and RPIJ, which was created to iron out the gap formed by the different methods of calculating the price of goods – stood at 2.6% and 2.7% in March respectively.

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