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Experian expects CPI inflation to increase very gradually, though the risks are balanced to the upside

The Consumer Prices Index (CPI) rose by 0.3% in the year to April, down from 0.5% in the year to March.

The main downward contribution came from transport where prices fell by 0.1% between March and April this year compared with a rise of 1.1% between the same two months a year earlier. By far the largest effect came from air transport. The timing of Easter this year caused a large increase in fares between February and March and a subsequent fall in April. These downward effects were partially offset by an upward contribution from motor fuels.

Clothing & footwear, and housing, water, electricity, gas & other fuels also made a downward contribution. A decrease in prices for women’s outwear was the largest downward contributor to the former category, while the latter benefited from a reduction in social housing rent.
Recreation and culture made the main upward contribution with prices rising by 0.8% between March and April compared to 0.2% between the same two months last year.

The latest data suggest that inflationary pressures in the UK remain subdued. Goods deflation remained entrenched at 1.6% while services inflation eased to 2.4% from 2.8% in March. Core inflation, which strips out food and fuel, also eased three percentage points to 1.2%.

In the coming months we expect CPI inflation to increase very gradually, though the risks are balanced on the upside. The downward move in the CPI in April is attributable largely to air fare increases linked to the timing of Easter, and this should unwind in the May numbers. The oil price, a heavily weighted component in the CPI had an upward impact in April. The price for Brent Crude oil is now approaching US$50/bbl compared to the low of below US$30/bbl in January and will continue to contribute to inflationary pressures. If the recent depreciation of sterling against a number of key currencies persists it will also support CPI growth through an increase in the cost of imports.

For now, our relatively benign baseline forecast remains largely unchanged, and we maintain our view that the first rise in Bank Rate will not take place until at least next year. In the meantime the low inflationary environment is expected to support healthy consumer spending growth of 2.4% this year.



This article is about: CPI, economics, economy, inflation