Inflation in the UK has eased to its lowest level in two-and-a-half years, partly due to the price of some food products starting to fall.
Official data from the ONS shows the Consumer Prices Index (CPI) fell to 3.2% in the year to March, down from 3.4% the month before.
The largest downward contribution came from food, with prices rising by less than a year ago, while the largest, partially offsetting, upward contribution came from motor fuels, with prices rising this year but falling a year ago.
Prices for food and non-alcoholic beverages rose by 4.0% year-on-year, down from 5.0% in February. The latest figure is the lowest annual rate since November 2021 having eased for 12 consecutive months from the high of 19.2% in March last year.
The annual rates for most types of food products eased between February and March, with the largest effects coming from bread and cereals, and meat. Prices for bread and cereals rose by 0.2% on the month, compared with a rise of 2.2% a year ago, resulting in an annual rate in of 4.0% – the lowest since January 2022. Prices of some bakery products, such as chocolate biscuits and crumpets, fell between February and March but rose between the same period a year ago. Meat prices also fell by 0.5% month-on-month, resulting in an annual rate of 3.1%, which is its lowest since November 2021.
Food and Drink Federation (FDF) CEO Karen Betts noted that the fall corresponded to input price inflation for manufacturers continuing to ease.
However, she warned that risks remain, including the increasing instance of extreme weather. “This has been very visible in the UK in recent weeks with this winter’s wet weather causing widespread flooding on farmland,” Betts said. “Inevitably, lower or poorer crop yields caused by bad weather have the ability to impact food prices.”
While the overall rate of inflation in March was slightly higher than economists expected, Chancellor Jeremy Hunt described the figures as “welcome news”.
The data comes ahead of the Bank of England’s next decision on interest rates on 9 May. The UK’s central bank has been increasing interest rates in a bid to slow price rises and bring inflation back to its 2% target.
Ian Stewart, Chief Economist at Deloitte, said that although inflation may be in “retreat” in the UK, “the Bank of England cannot yet be sure that it is beaten”.
With wage growth remaining above forecasts and the economy reviving, he noted that the Bank would be in “no hurry to cut interest rates”.
Yael Selfin, Chief Economist at KPMG UK, said that today’s figures were “unlikely” to move the needle for the Bank of England.
He also pointed out there were still several risks that may cause a setback for investors, businesses and consumers. “Oil prices have rallied over the past month which has led to an increase in prices at the pump for consumers. Also, the hike in the National Living Wage could potentially contribute to persistence in services inflation, which remains elevated,” Selfin said.
NAM Implications:
- The key is what will increase demand.
- And with fuel costs and increases in the National Living wage yet to impact…
- …then savvy consumers will need more encouragement and rebuilding of trust to loosen their purse strings.
