Belfast Telegraph

Wednesday 23 July 2014

Inflation rate unchanged at 2.8%

Inflation is expected to peak at more than 3 per cent this summer

Sharp rises in car insurance premiums piled further pressure on household budgets last month as inflation remained at its highest level since last May.

The Office for National Statistics (ONS) said Consumer Prices Index (CPI) inflation stayed at 2.8% in March after a 5.8% increase in the cost of transport insurance offset slower rises in diesel and petrol prices.

While inflation remained unchanged on February, there are fears over a summer of financial pain for consumers ahead as economists predict CPI to hit 3.5% over the next few months.

The ONS said price hikes for digital cameras, books and DVDs also kept CPI stubbornly above target last month while the recent round of energy bill increases added to inflationary pressures.

But inflation eased at the fuel pumps as petrol prices rose by 2.2p a litre against 3.3p a litre a year earlier. Diesel increased by 1.9p a litre compared with 2.6p last March. Furniture prices also rose at a slower pace than a year ago while cheaper vodka and lager helped see a 0.5% fall in alcoholic drink and tobacco costs.

March's unchanged rate of inflation is set to be a temporary reprieve as food inflation, higher gas and electricity tariffs and upcoming water bill rises are expected to send CPI up even further.

Inflation has remained above the Government's 2% target since December 2009, pushed up in recent months by the weakness of the pound at the start of the year.

The figures come ahead of minutes due on Wednesday of the Bank of England's April interest rates meeting, which is expected to reveal another close call among policymakers. The Bank voted to hold its quantitative easing (QE) programme at £375 billion this month. Experts predict that Bank Governor Sir Mervyn King and fellow rate-setters David Miles and Paul Fisher were once more outvoted in calling for another £25 billion of QE amid signs of life in the economy.

The Treasury shrugged off inflation fears, stressing that CPI is still down by almost a half from its peak of 5.2%.

James Knightley, ING Bank economist, said last month's lower fuel price inflation and the pound's recent bounce back suggested concerns over CPI may be overdone. "We suspect that the Bank of England's view that inflation is likely to remain above 2% for pretty much all of the next couple of years could be a little too negative," he said.

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