UK inflation rate increases to 1.8%

UK inflation rate increases to 1.8%
Unexpected rise from 1.6% blamed on late Easter and petrol prices but data feeds fears inflation is outstripping wages again

The UK rate of inflation rose for the first time in almost a year in April after consumers paid more to travel over the popular Easter period.

Annual inflation measured by the consumer prices index rose to 1.8% from 1.6% in March, also pushed higher by petrol prices.

It was the first rise in inflation in 10 months, and economists had forecast a smaller increase to 1.7%.

The figures from the Office for National Statistics showed that inflation is once again outpacing wage growth, with the latest available data showing average pay rises of 1.7% in the three months to March. The month-on-month figure between February and March showed an increase in earnings of just 1%.

Pay had finally caught up with inflation in recent months, following a prolonged period of real wage falls since 2008. The April inflation figure threatens to reignite fears that a cost-of-living crisis is not yet over.

The TUC general secretary, Frances O'Grady, said: "Last month we were told the living standards crisis was over. Yet one month later real wages are falling again. Even on a measure that excludes the cost of housing, prices are rising faster than wage packets.

"It will be years before workers even recover the earnings they have lost since 2008, let alone start to feel any better off."

However, Samuel Tombs, UK economist at Capital Economics described April's rise in inflation as a "blip".

He said: "The rise in UK consumer price inflation in April should not be seen as a sign that the economic recovery is causing underlying price pressures to build.

"Instead, the increase in CPI inflation from 1.6% to 1.8% in April almost entirely reflects the impact of the later timing of Easter, which fell in April this year but in March last year."

The biggest driver of the rise in inflation was higher transport costs as air fares and sea fares increased as people travelled over Easter. Air fares jumped 18% while sea travel costs increased by 22%. Petrol prices also contributed to the higher inflation rate, as unchanged prices in April compared with a fall in the same month last year. The rises were enough to offset a 0.5% fall in food prices.

Despite the increase in inflation in April it was the fourth month that the annual rate was below the Bank of England's 2% target. The last period of below target inflation was more than four years ago.

"The outlook for inflation over the coming months is benign, with CPI set to stay below the 2% target over the next year," said Sam Hill, senior UK economist at RBC Capital Markets.

The Bank of England's latest forecasts published last week suggested inflation will remain close to the 2% target over the next few years. With a lack of inflationary pressure, the bank's governor, Mark Carney, reiterated that the bank would be in no rush to raise interest rates – on hold at 0.5% since March 2009 – with the first rise most likely around the time of the general election in the second quarter of 2015.

The Treasury said: "The latest figures show that inflation remains below the target rate and well below half of the peak in September 2011. Lower inflation and rising job numbers show that the government's long-term plan is working and Britain is coming back. The biggest risk to economic security would be abandoning the plan that is creating a brighter economic future."

http://www.theguardian.com/business/2014/may/20/uk-inflation-rate-increase-cpi

Amazing how they managed to take house prices rises out of the Index.