Published: Wed, May 17, 2017
Health Care | By Oscar Goodwin

UK inflation rate highest since 2013

UK inflation rate highest since 2013

British inflation hit its highest level since September 2013 last month, extending its sharp rise since the vote to leave the European Union and tightening the squeeze on living costs as a national election approaches.

"Today's inflation bulletin from the ONS feels somewhat like Groundhog Day", says Hargreaves Lansdown senior economist Ben Brettall, as sterling weakness continues to feed through.

The pound has fallen more than 14% against the US dollar since the country voted to leave the European Union last June, putting upward pressure on import costs and adding more than 2.2 percentage points to headline consumer prices in the following 10 months. Bank of England Governor Mark Carney last week warned of "challenging times", with officials now predicting inflation will reach nearly 3 percent this year. "That boost, along with the pick-up in growth in Europe will mean stronger export performance in 2017, partly offsetting weaker domestic demand".

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Input prices rose by 16.6% year-on-year in April, missing estimates of 17.0% and down from 17.4% in March and January's peak of 19.9%.

The consumer-price index rose 4.4% from a year ago, according to the Department of Statistics, compared with a 5.1% year-over-year increase in March.

Meanwhile the consumer price index including owner occupiers' housing costs, which the ONS has designated as its main measure, rose to 2.6 per cent.

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Inflation growth was mainly driven by the rise in air fares in April due to the late timing of Easter this year.

Overall, fuel prices fell by 1.5% between March and April, whereas in the same period previous year they rose by 3.4%.

ING economist James Smith said the above-consensus rise will "test the patience of some of the Bank of England's hawks", but expects interest rates to remain on hold for the next two years. "In contrast, the Easter holidays fell in March 2016, [and] the uplift in prices was seen in the March 2016 data".

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"The MPC expects inflation to rise further above the target in the coming months, peaking a little below 3% in the fourth quarter". However, inflationary pressure also came from clothing and energy costs, with none of the 13 categories of products and services witnessing price falls. This is the ONS' preferred measure of inflation but this statistic does not now meet global standards.

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