March shows unexpected fall in inflation

Inflation figures for March showed an unexpected drop for the first month since last July, easing some of the building pressure on the Bank of England to increase interest rates.
The consumer price inflation figures from the Office for National Statistics (ONS) showed a drop from a 4.4 per cent inflation spike in February, to 4.0 per cent in March.  The drop surprised many analysts who had been expecting either no change, or a more modest reduction.
The Bank of England’s Monetary Policy Committee, which is responsible for setting the bank’s base interest rates, has come under increasing pressure in recent months to raise rates to help control spiralling inflation.  March’s drop in inflation will help reduce this pressure – however despite this apparent sign of improvement, inflation remains twice the Bank’s stated target level of 2 per cent.
Investec economist Philip Shaw said:  “It should help to stave off a rate rise in May.  But while this is welcome, this is just one battle in what will be a long tussle.  It’s still possible inflation will rise to 5 per cent over the course of the year.”
The Bank of England’s most recent decision to hold interest rates at 0.5 per cent contrasted with a decision the same day by the European Central Bank to increase its rates in direct response to inflationary pressures.
March’s fall in consumer price inflation appears to have been primarily driven by a drop in the costs of food and non-alcoholic drinks.  The ONS said this reflected “supermarket led sales”.  It also remarked on downward pressure on inflation from the cost of recreation goods (including games, toys and hobbies) and air transport, which had seen fares rise by less than a year ago.


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