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Inflation rate falls by 0.3% but increases expected in second half of the year

Signs of rises on way as oil price climbing back up

By Margaret Canning

Published 18/05/2016

Women’s fashion prices have had an impact on the Consumer Price Index
Women’s fashion prices have had an impact on the Consumer Price Index

Falls in the price of women's clothing helped push the rate of inflation down to 0.3% during April, figures show.

Consumer Price Index (CPI) inflation fell from 0.5% in March, the Office for National Statistics (ONS) said.

The ONS also said a 14% month-on-month fall in airfares contributed to the first month-on-month drop since September, as a relatively early Easter had pushed fares up 23% during March.

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

Dankse Bank chief economist Angela McGowan said consumers should not indulge in a "false sense of hope" that prices would continue falling after the March to April drop.

She said the Bank of England had forecast an increase in the headline rate of inflation in the second half of the year.

"The current levels of relatively low inflation still reflect past falls in energy, but oil prices are now slowly climbing again so this current downward pressure on annual inflation could be out of the year on year comparison by late summer.

"Indeed, global commodity prices are generally rising as China's economy stabilises."

And she said that while the Bank of England expected inflation to reach its 2% target by 2018, it was possible that the threshold could be met next year.

"If the UK votes to remain in the EU and we see UK growth bounce back in the second half of this year, this combination of rising commodities alongside improved consumer confidence in the UK may mean that the BoE will hit its inflation target sooner than it thinks.

"Meeting the 2% target rate in 2017 should not be ruled out."

CORE inflation, meanwhile, increased 1.2% year-on-year in April, down from 1.5% year on year on March.

PwC NI chief economist Dr Esmond Birnie said the inflation figures - along with property price reports from both the ONS and Northern Ireland Statistics and Research Agency (Nisra) - suggested an "unbalanced" UK economy.

"Looking forward, we expect a moderate increase in inflation rates in the second half of 2016.

"We are already seeing petrol and diesel prices edging up and food prices, which were previously falling, have now flattened."

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.

Belfast Telegraph

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