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Fears over inflation despite surprise fall

The surprise fall in UK inflation last month doesn't rule out further price rises in the months ahead, according to leading Northern Ireland economists.

Esmond Birney from PwC in Belfast said the drop in the Consumer Price Index to 2.4% in April from 2.8% last year was welcome but most probably the precusor to a hike in prices.

"Airfares and fuel prices, which contribute to April's decline, are among the more volatile components of inflation and these could easily reverse," he said.

"That means the drop we have seen in April may not be sustained, so we cannot assume that inflation is on a steady decline towards the Bank of England's 2% target and regrettably we could see inflation moving upwards again over the summer."

The Office for National Statistics said lower fuel prices, which saw petrol and diesel fall by 2.1p and 3.9p a litre resepctively, are behind much of the slide in April's inflation rate, along with a fall in air fares.

Mr Birney's comments come ahead of today's announcement by NIE that electrcity prices will rise by 18% from July.

Angela McGowan, economist at Danske Bank in Northern Ireland, also said the upward pressure on prices might not have ended. "While price pressures have very definitely fallen from their lofty levels in 2011, we should not expect a dramatic downward spiral from here onwards," the economist said.

"The latest fall has been driven largely by falling travel costs and in particular falling fuel costs – this is something that is typically followed by a correction a month or so later.

"The volatility in global oil prices means that we cannot rely on the current low oil price to be maintained during the months ahead.

"Although the two-year inflation forecast is for a downward trend, we nonetheless expect volatility in the headline inflation rate during 2013."

Air fares in the CPI measurement fell by 6.4% on a month earlier, compared with a rise of 7.4% a year earlier.

The only notable upward effect came from food and non-alcoholic drinks.

Prices rose by 0.7% on the month, compared with a 0.1% fall a year earlier, as farmers pushed through price rises after the freezing winter ruined crops.

2.4%

The April inflation figure which was lower than had been expected

Belfast Telegraph