UK inflation remains in double digits as food prices continue to rise

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UK inflation remained in double digits in March with annual rates rising 10.1 percent, increasing the chances of a rate hike from the Bank of England.

Consumer price inflation was 10.4 percent in February and was expected to fall to 9.8 percent last month.

Although gasoline and diesel prices fell in the month, other sharp increases in food, entertainment and culture costs left the index in the double digits.

The Bank of England has been watching these figures closely as they were the last significant data release before its next meeting in early May.

Officials had hoped there would be first signs of a significant reduction in inflationary pressure, but core inflation, excluding food and energy prices, was unchanged at 6.2 percent, still too high to give them comfort.

The pound strengthened against the dollar, with the pound rising 0.3 percent against the dollar to $1.24 in early trading on Wednesday.

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Grant Fitzner, chief economist at the Office for National Statistics, said inflation remained at a “high level”. He said the fall in motor fuel prices was “partly offset by the cost of food, which continues to rise sharply, with bread and grain price inflation at a record high.”

The drop in headline inflation was caused almost entirely by motor fuels as the average price of a liter of petrol fell from just over £1.60 in March 2022 to less than £1.47 last month.

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Offsetting that and keeping the headline rate high has pushed up food prices, especially bread and cereals, with prices rising 19.1 percent in the year to March.

The Bank of England’s Monetary Policy Committee has been looking for signs that underlying inflationary pressure is moderate and that the decline in the core rate is not just due to last year’s large increases in energy prices starting to pull out of the annual comparisons.

Members will not be reassured that service inflation remains at 6.6 per cent and core inflation fails to come down, instead remaining steady at 6.2 per cent. The Monetary Policy Committee said it would raise interest rates again from the current level of 4.25 percent, “if there is evidence of further sustained pressure.”

Failing to see any decline in core inflation will require the Bank to take action and raise interest rates again on May 4, said Kitty Usher, chief economist at the Institute of Directors. There is clearly more demand in the economy than the Bank of England expected in the first quarter.

Samuel Toombs, chief UK economist at Pantheon Macroeconomics, said the decline in the key rate was “too modest for the MPC to stop raising interest rates”.

The consultancy, Capital Economics, said the stubbornness of high inflation increased the possibility that a hike in interest rates to 4.5 percent at the May meeting would not be the last.

UK inflation has not fallen as fast as comparable indicators in many European countries that saw energy prices fall in March data, but UK headline rates are expected to drop significantly next month.

With gas and electricity prices for April already known, the annual increase in this component will drop from 96 percent to 27 percent, although consumers will not feel any improvement because the energy price ceiling will remain at the same level. These prices are expected to start falling in the summer.

The core inflation rate is still on track to halve by the end of the year, which meets the government’s target. “These figures underscore exactly why we must continue our efforts to bring down inflation so that we can take the pressure off families and businesses,” the finance minister, Jeremy Hunt, said in a statement.

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