Tuesday, May 17, 2016
British inflation just fell for the first time in 8 months
UK inflation fell for the first time since September 2015 in April, coming in at 0.3%, according to official figures released on Tuesday.
The Office for National Statistics says the consumer price index — the key measure of inflation in Britain — was up 0.3% on a year-on-year basis in April, missing the 0.5% consensus forecast of economists and down from March's reading. Inflation was exactly in line with the Bank of England's most recent forecast.
The month-on-month figure came in at 0.1%, down from 0.4% in March, and a miss on the 0.3% rise expected.
Core inflation figures, which strip out volatile goods like oil and food, came in at 1.2%, again down from the last month, when the core number was 1.5%
Prior to the last few months, inflation had stayed between -0.1% and 0.1% for 10 months due to a collapse in oil prices and a supermarket price war that led to slashed prices, but prices are now starting to pick up. Here's the inflation picture for the UK since 2006.
While inflation has broadly improved in recent months, April's reading is a first fall in eight months, and well below the 2% wanted by Britain's policymakers. UK inflation hasn't been higher than 2% since late 2013.
Alongside the core figures, the ONS releases a breakdown of inflation by sector. Last month, people spending more money in hotels and on dining out, helped pull inflation higher, but in April, inflation was dragged by lower transport costs and the falling price of food and non-alcoholic beverages.
Here's the sector-by-sector breakdown for April:
And here's the ONS' take on its sector-by-sector numbers:
Falls in air fares and prices for clothing, vehicles and social housing rent were the main contributors to the decrease in the rate.
These downward pressures were partially offset by rising prices for motor fuels and for certain recreational goods and cultural services, and by food prices, which were unchanged between March and April 2016, having fallen between the same two months a year ago.
While the fall doesn't look promising for the British economy, Pantheon Macroeconomics notes that much of the fall is down to a return to normal for the cost of airfares, and doesn't represent an easing of inflationary pressures. Here's Pantheon's chief UK economists Samuel Tombs (emphasis ours):
The sharp fall in inflation in April is not a signal that inflation pressure is easing. The fall mainly reflected a decline in airline fares inflation to -3.2% in April from March’s Easter-boosted rate of 17.2%. The recent increase in oil prices and sterling’s depreciation suggest that airline fares inflation will bounce back to a positive rate soon. The other main downward influence on inflation was a fall in clothing inflation to 0.3% from 1.4%, which merely seems to reflect retailers discounting in response to unusually bad weather. Sterling’s decline has boosted apparel retailers’ costs and will compel them to raise their prices soon.
The pound fell on the inflation news. Just after 10:00 a.m. BST (5:00 a.m. ET) sterling is up by 0.46% against the dollar, having been up as much as 1% earlier in the day after a bunch of polls showed the remain camp pulling away ahead of the UK's EU referendum. Here's how things look: