INFLATION is expected to hold steady when official figures are released today, with a drop in air fares and falling petrol prices helping keep prices down.
The Consumer Price Index (CPI) measure of inflation is expected to come in at 2.3 per cent in March, according to consensus estimates, matching February’s figure but up from 1.8 per cent in January.
It marks temporary respite from climbing prices after the post-Brexit collapse of the pound, but economists say that a late Easter is responsible for the pause.
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Samuel Tombs, Pantheon Macroeconomics’ chief UK economist, said: “Easter Sunday fell on March 27 last year, but on April 16 this year. This will affect the path of inflation because plane ticket prices soar close to the holiday.”
He said air fares are likely to have plunged in March, contributing to a 0.13 percentage point decline from the headline CPI figure.
Meanwhile, a fall in petrol prices is believed to have shaved 0.06 percentage point off the inflation rate. “Nonetheless, CPI inflation will take big upward strides over the coming months, and it likely will exceed three per cent by the summer,” Mr Tombs added.
If true, that would exceed the Bank of England’s predictions, which forecast inflation of 2.7 per cent by the end of 2017, before peaking at 2.8 per cent in the first half of 2018 and easing to 2.4 per cent by 2019.
It is expected to pile pressure on the Bank’s Monetary Policy Committee to hike interest rates beyond 0.25 per cent this year.
February’s reading of 2.3% marked the first time inflation had surpassed the Bank’s 2% target since November 2013.
It followed a significant weakening in the pound, which has fallen by more than 17% against the US dollar and 10% against the euro since the Brexit referendum, increasing the cost of imports.
One of the biggest contributors to the March CPI is believed to have come from rising food prices, according to Pantheon Macroeconomics, which also predicts that climbing energy prices are starting to squeeze households.
Howard Archer, chief European and UK economist at IHS Markit, said there is further pain ahead for consumers.
“Consumer price inflation is expected to spike higher in April due to the later Easter impact.
“Additionally, more price rises by utility companies are occurring in April.”
However, Mr Archer said the CPI’s upward trajectory will eventually “be constrained” by a weakening UK economy over the coming months, and that businesses will not be able to raise prices without consequence.
“Retailers, manufacturers and services companies will find the upside to their pricing power limited, given that the previous prolonged squeeze on households’ purchasing power has made consumers very price conscious,” he said.