Inflation increased sharply today by nearly half a percentage point. CPI rose to 2.7% and RPI to 3.5%.
As mentioned last month, predicting this month’s inflation numbers were going to be difficult. Although a number of price rises such as council tax, electricity and vehicle excise duty were likely to add to the inflation rate, the increases in petrol prices last year were also going to fall out of the calculation and so temper this. However the official CPI measure rose more than most expected due to the two elements that ONS struggle to reliably measure i.e. clothing and airfares. Due to the later timing of Easter this year, both showed apparent marked rises in April 2017. Last year both numbers declined in the post Easter period then and so the overall effect is a sharp boost in apparent inflation this month. The rises in both these elements will very likely reverse out next month and bring the headline rates back down. In addition, petrol prices have continued to decline since April (down 3p/litre), so it would not be surprising to see CPI back to around 2.5% in May.
The above said, it should be noted that core inflation has moved up sharply this month to 2.4% – its highest level for over four years. It is relatively unusual to see it that high and is probably a reflection of higher factory gate prices (3.6%) resulting from producer input prices (16.6%). However both these measures may well temper if sterling continues its recovery post the election.
ONS continue to promote their new CPIH measure (see here for more info). As predicted, it is now beginning to headline a lower inflation rate than even CPI shows – and many argue that CPI under-represents inflation vs RPI anyway (see here). CPIH is lower because the Owner Occupier Housing (OOH) element it includes is just 2.2% and declining. This therefore drags down CPIH versus CPI which does not include it. On the positive side, the BBC appear to be still promoting the higher CPI measure and ignoring CPIH in their bulletins. This makes sense on many grounds – not least that the UK Statistics Authority have yet to recognise CPIH as a valid National Statistic.
The full ONS analysis can be found here.