Inflation set to fall to 2.7 per cent in April

Tuesday, 21 May 2013 07:24

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Inflation is expected to fall slightly when the new figures for April are published by the Office for National Statistics (ONS) today.

The consumer prices index (CPI) measure of inflation is expected to fall to 2.7 per cent, from 2.8 per cent where it was in February and March. A fall in petrol prices is expected to be the biggest influence contributing to the fall.

The biggest upward pressures on inflation are expected to come from higher water bills and energy price increases announced in the first few months of 2013.

Inflation has been at either 2.7 or 2.8 per cent since September 2012 when it hit a 34-month low of 2.2 per cent.

The rise in inflation since then has been due to the impact of the increase in university tuition fees, high energy costs and a rise in food prices.

Last week, the governor of the Bank of England, Sir Mervyn King presented the bank’s quarterly inflation report for the last time before he hands over to new governor Mark Carney.
He was able to predict that inflation will fall faster than previously announced in the last report in February.

Sir Mervyn said that inflation will reach the bank’s two per cent target in two years. In February he said inflation would be 2.3 per cent in two years time.

However, yesterday, Ernst & Young’s Item Club warned that inflation will stay above the two per cent target for at least three years.

The Item Club said: “There is little prospect of inflation getting back down to 2% for the foreseeable future” as it predicted that inflation will average 2.9 per cent in 2013 and edge back above 3.0 per cent this summer before falling later in the year.

Dr Howard Archer, Chief UK & European Economist at IHS Global Insight expects inflation to peak at around 3.0 per cent this summer and says it could then fall back quicker than expected.

“This, of course, assumes that there is not a renewed, sustained appreciable move back up in oil prices and that sterling does not suffer a major renewed downward lurch,” said Mr Archer.

Looking further ahead, Mr Archer said: “Specifically, we see consumer price inflation at 2.7% at the end of 2013 and we expect it to then trend down gradually to stand at 2.1% at the end of 2014. There is a very real chance that inflation could finally get down to the promised land of 2.0% early in 2015.”

 

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