Price inflation creeping

Price inflation rose in the year to March, according to the latest official figures. The Consumer Prices Index (CPI) measure of price inflation rose from 0.4% in the year to February to 0.7% in the year to March, pushed higher by rising prices for fuel, transportation and clothing.

While higher than a month earlier, the latest official inflation figures were slightly lower than the numbers predicted by economists.

Lower food prices helped to hold back the inflation rise.

It was the most significant rise in fuel prices since the start of last year. Price inflation is likely to continue climbing over the coming months due to higher prices for energy and oil.

According to a forecast from the Bank of England, CPI inflation could reach 1.9% by the end of the year, slightly lower than its inflation target of 2%. However, other economists believe inflation could breach the 2% target this year.

Jonathan Athow, deputy national statistician at the ONS, said:

“The rate of inflation increased with petrol prices rising and clothes recovering from the falls seen in February.

“However, food prices fell back on the year, as prices of some staples were lower than at the start of the pandemic.”

The latest official inflation figures follow an unexpected fall in the year to February, due in part to a significant drop in the price of clothing and footwear.

The ONS said that retailer discounting had eased up to some extent in March, following a considerable amount of sales promotions a month earlier. However, discounting remains high for this time of the year.

Suppose price inflation does continue to creep up. In that case, it could pose some challenges for the Treasury, which rely on low interest rates to keep their record levels of public borrowing relatively affordable. Higher price inflation could lead to a higher cost of borrowing.

According to the Office for Budget Responsibility, interest rates going up by 1% would add £20 billion each year to the cost of servicing public borrowing.

As things stand, the financial markets are pricing in an interest rate rise by the end of next year, but many commentators believe that rates will remain lower for longer.

The next set of price inflation figures will likely be higher still, following a record collapse in oil price a year earlier.