Belfast Telegraph

Thursday 17 April 2014

Squeezed workers welcome easing in inflation

Economist: Richard Ramsey

The annual rate of inflation in the UK has fallen to 2% on the back of a stronger pound and a slowdown in the price increase of food and non-alcoholic drinks.

CPI inflation now stands at the Bank of England's much-talked-about target and marks a steady fall from the 5.2% level reached in 2011.

Not only will the latest reading ease the pressure on the central bank but it will also make life slightly easier for hard-pushed workers who have had to deal with rising prices and slow wage growth.

"This latest inflation data provides good news to households in terms of helping to remove that long-endured squeeze on living standards and leaves the Bank of England with plenty of scope for keeping interest rates low," said Angela McGowan, economist at Northern Bank.

The stronger pound, which makes importing goods to the UK from non-sterling countries cheaper, has been behind much of the slide in inflation but the drop in food price inflation also played a big part, a factor which has weighed heavy on consumers.

"Last year food price inflation averaged 4% for the year as a whole while energy prices rose by over 7%," Richard Ramsey, economist at Ulster Bank said, adding that the relief may be short lived.

"The latter are expected to rise by a similar amount in 2014."

Esmond Birnie, an economist at PwC in Belfast, agreed.

"With the labour market strengthening and recovery in place, wages should start to overtake cost of living and that, combined with global recovery, could push up global food, commodity and energy prices.

"Now that inflation has returned to target, the challenge will be to keep it there."