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Inflation down as air fares fall and clothes shops cut prices

Published 17/05/2016

Falling air fares led to a drop in inflation
Falling air fares led to a drop in inflation

Inflation fell in April for the first time since last September as air fares fell back and clothes shops slashed prices on the high street, according to official figures.

The Office for National Statistics (ONS) said Consumer Price Index (CPI) inflation dropped to 0.3% from 0.5% in March as air fares fell by 14% month-on-month, having surged 23% the previous month due to the timing of Easter.

Shoppers saw clothing price tags cut by 0.4% during the month as womenswear retailers dropped prices amid flagging sales as they were hit by last month's cold weather.

But the ONS said April also saw prices on the forecourts rise, while food prices fell by less than they did a year earlier.

James Tucker, head of CPI at the ONS, said: "After five months of inflation gently rising, we have again seen a fall in CPI.

"The main reason for the drop was a fall in air fares, which saw a large rise in March due to the timing of the Easter holidays."

Last month's fall in inflation is expected to be brief, given the recent bounce back in the price of oil.

Petrol prices rose by 3.6p between March and April to 105.9p a litre, while diesel lifted by 3.4p to 106.5p a litre.

Inflation is predicted to rise only gradually over the year, but remain well below the Government's 2% target, leaving the Bank of England in little hurry to raise interest rates - which have remained at 0.5% since March 2009.

But Bank governor Mark Carney warned last week a Brexit vote in next month's EU referendum would "notably" impact the outlook for inflation, with a potential slump in the value of the pound causing prices to shoot up, while he revealed it could tip the UK into recession.

Rate-setters may face the twin threat of surging inflation and falling economic activity.

Sterling has already fallen in value by around 9% since last November, due largely to uncertainty ahead of the referendum.

A Treasury spokesman said: "Today's inflation figure continues the trend we've seen over the past year. Pay is growing faster than prices, boosting families' spending power.

"Last week the Bank of England's Monetary Policy Committee warned that a vote to leave the EU would put this all at risk by hitting GDP and increasing inflation.

"As the Chancellor has said, this would create a lose-lose situation for our economy."

The latest inflation figures show womenswear prices were cut last month - in particular for jumpers, cardigans, casual trousers and skirts.

Figures also showed that food prices, which have been dropping for a number of years amid a fierce supermarket price war, were unchanged month-on-month, although they dropped by 2.6% on an annual basis.

The ONS added that the Retail Prices Index (RPI) - a separate measure of inflation, which includes housing costs - dropped to 1.3% in April from 1.6% in March.

Inflation has now remained below the Government's target every month for more than two years, while UK growth is also faltering, slipping back to 0.4% in the first quarter and likely to drop further due to referendum fears.

Howard Archer, economist at IHS Global Insight, said that in normal circumstances, this would "cause the Bank of England to seriously think about relaxing monetary policy".

"However, the Bank of England is clearly not going to act on monetary policy before June's referendum on EU membership," he added.

The Bank believes inflation will rise to 0.9% by the end of the year, although this is based on a vote to remain in the EU.

Brexit uncertainty is also expected to impact Wednesday's official jobs figures, with unemployment expected to rise for the second month in a row.

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