Inflation beats expectations, but rise is only due to temporary factors


13-04-2016

Inflation picks up... but the rise is entirely due to temporary factors. Return to a 2% target is still on course to be a long slow grind, says EY.

 

Martin Beck, senior economic advisor to the EY ITEM Club, comments:   “Although the headline and core measures of CPI inflation accelerated in March, this was entirely due to the impact of two temporary factors - the impact of an early Easter on air fares and base effects from last March’s unusual fall in clothing prices. Both of these factors will unwind in next month’s data.

“Otherwise the inflationary environment remains benign. While the recent rise in the oil price has caused petrol prices to edge upwards, we saw a similar pattern last spring so it is not exerting any upward pressure on inflation rates. And with several of the ‘big six’ energy suppliers cutting their gas prices in late-March, this will put further downward pressure on inflation from April.

“Today’s producer prices data does suggest that both input costs and output prices have now bottomed out, reflecting the influence of a weaker pound, so we are likely to see some modest inflationary pressures coming along the supply chain. But unless there is an unexpected shock to either global commodity prices or the exchange rate, inflation looks set to continue running at similar rates for much of this year. Only once the base effects associated with last winter’s collapse in the oil price begin to kick in from December, are we likely to see the CPI measure move up to, and then above, 2%.”

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