The UK’s consumer price index (CPI) measure of inflation fell to 2.3 per cent in April (year-on-year), versus 2.9 per cent in March, according to figures from the Office of National Statistics. While the number was lower than expected by the market, it still came in above the government’s 2 per cent target for inflation.
The retail price index (RPI) meanwhile came in at -1.2 per cent in April, the lowest level since records began in 1948.
According to the ONS, the main disinflationary forces in CPI were:The largest downward effect on CPI inflation came from housing and household services, mainly due to electricity and gas bills which fell this year but rose a year ago. Food and non-alcoholic beverages also contributed to the decline, with the largest effect coming from vegetables and meat.
Prices for alcoholic beverages and tobacco had a further downward effect as prices rose a year ago, mainly reflecting an increase in excise duty, whereas this year’s rise in duty takes effect a month later.
Upward pressures meanwhile were felt from:
Among upward pressures on CPI inflation, large effects were felt from rising transport costs, particularly the rising prices for cars, and the cost of fuels and lubricants which rose by more than a year ago, with this year’s price rise reflecting the increase in excise duty introduced in April.
The main factors affecting CPI also affected the RPI, according to the ONS – although in RPI’s case the largest downard effect was felt from lower mortgage interest payments.
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An update: Simon Hayes at Barcap offers his first impressions (our emphasis):
Inflation was a little weaker than expected in April. The CPI rose by 0.2% m/m compared with a consensus (and our own) forecast of 0.4%. This took the annual inflation rate down to 2.3% y/y from 2.9% in March, the lowest since January 2008. The RPI rose by 0.1% m/m (consensus and BarCap 0.2%) and registered an annual inflation rate of -1.2% y/y, the weakest since the monthly data began in 1948.
The main source of news relative to our own forecast was in food prices, which fell in April compared with our forecast of a rise. The news appears to have been concentrated in non-seasonal food, and so is more likely to be persistent than if it came from the more erratic seasonal food category. At first sight, therefore, the news in today’s release would suggest a small downward revision to our inflation forecasts – although we are still to go through the details.
The broad inflation outlook is unchanged, however: we expect RPI inflation to remain negative for most of this year and for CPI inflation to continue to fall, until base effects plus the planned hike in VAT at the end of the year cause a temporary reversal in these trends. With a large amount of spare capacity building in the economy, the medium-term inflation outlook remains very subdued.
Related links:
Back to 1960 – FT Alphaville
Deflation avoided, phew – FT Alphaville