Inflation rate nudges up to 3.5%

THE headline rate of inflation rose to 3.5% in March, official figures showed today.

Statistics published this morning showed CPI inflation rose by 0.1%. The new figure raises questions over whether the increase in prices will slow as quickly as the Bank of England has forecast.

The Bank of England has predicted CPI inflation will drop rapidly this year and has previously expressed concern it may even fall below the 2% target.

However, the minutes of the Monetary Policy Committee last month showed that concerns over rising oil prices had played a part in its decision not to further expand its quantitative easing programme.

Andrew Goodwin, senior economic advisor to the Ernst & Young ITEM Club, said: “Higher oil prices are clearly having a major impact and, with retail petrol prices climbing further in recent weeks, inflation is likely to remain high in April too.
 
“The other upward pressures come from categories with a history of volatility and could easily unwind next month, so the outlook for the next few months is likely to be shaped by the movement in oil prices. The move down over the past couple of weeks from the high $120’s to around $120 per barrel is encouraging, but the situation remains delicately poised.”

Jack Stopforth, chief executive at Liverpool Chamber of Commerce, said: “The inflation figures for March were broadly as expected. However, it is disappointing that the steady fall in inflation seen since September 2011 has been reversed this month.

“We expect inflation to fall over the remainder of the year, but the decline will be less than the Monetary Policy Committee (MPC) has envisaged. This means that the pressures on businesses and consumers will ease, but not as rapidly as first hoped.

Dr Brian Sloan, chief economist at Greater Manchester Chamber of Commerce, said: “Households remain under pressure as inflation is proving to be more sticky than the Bank of England had anticipated, and they certainly weren’t wanting an increase. We are now seeing consumer prices inflation up 0.1% at 3.5% and above typical wage increases.

“Fuel price increases as a result of last month’s panic don’t seem to have impacted on inflation, though the hot weather appears to have taken many by surprise so demand has outstripped supply and kept prices high.”