20 May, 2017
Meanwhile, the food sub-index increased by 2.04 per cent in April, down by 0.17 per cent points from 2.21 per cent recorded in March. "Inflation is set to rise to around 3pc or higher in the months ahead - with prices likely to be rising faster than wages in the months ahead". Inflation now stands at 2.7% - up from 2.3% in March - and above the Bank of England's 2% target.
Inflation climbed to its highest level in three-and-a-half-years over April as the weak pound and Easter break took their toll.
The fall in inflation was broad-based and the CPI excluding vegetables also fell to the lowest level since 2012. Dukascopy SA is not responsible for any losses arising from any investment based on any recommendation, forecast or other information herein contained.
United Kingdom workers saw their real earnings fall in the first quarter for the first time in 2 1/2 years, despite unemployment dropping to its lowest in more than four decades.
Earlier this month, the RBI left the key policy rate unchanged at 6.25 per cent for the third review in a row, citing upside risks to inflation.
Despite the lowest unemployment rate in more than four decades, real wages in the United Kingdom fell at their fastest rate in the first quarter of the year since 2014.
Finance minister Philip Hammond said he expected a less prolonged squeeze this time because the rise in inflation would be transient.
The Bank said in its inflation report on Thursday that CPI would peak at 3% later this year, as the pound's slump following the Brexit vote causes price tags on everyday items to tick higher.
The sharp jump in inflation was driven partly by this year's much later Easter, which pushed up air fares by almost 19% over the month.
In particular, wage growth has been notably weaker than expected. But energy price rises from the "big six" suppliers more than offset a slight drop in petrol prices and clothing and auto tax also added to the pressure.
Overall, fuel prices fell by 1.5% between March and April, whereas in the same period a year ago they rose by 3.4%.
"Without higher wage growth, real earnings will continue to fall for the next two years, weighing on consumer spending and thus GDP growth", said Christian Schulz at Citi.
Higher inflation tends to put pressure on the Bank to raise interest rates in order to keep it under control, though this is seen as unlikely at the moment given the uncertainty facing the economy amid the Brexit process.
