“UK Inflation” Plummets to a 30-Month Low: Is This the End of Soaring Prices?

UK Inflation Plummets to a 30-Month Low: Is This the End of Soaring Prices?

Although the rate of inflation decreased last month to its lowest point since September 2021, it did not fall as sharply as the City had predicted.

The Office for National Statistics (ONS) reports that the Consumer Prices Index, the official indicator of living expenses, decreased to 3.2% in March from 3.4% in February.

The City, however, had anticipated that the CPI would drop to 3.1%, raising new worries about “sticky” inflation that might take longer to stabilize.

The metric reached its highest point in October 2022, when the full-scale Russian invasion of Ukraine precipitated an abrupt global increase in energy costs that severely hindered the expansion of the international economy.

In an attempt to rein in inflation, the Bank of England quickly raised interest rates to their present level of 5.25%, where they have remained since last August following 14 straight rises. As a result, the UK entered a recession in the second part of the year.

“Inflation eased slightly in March to its lowest annual rate for two and a half years,” stated Grant Fitzner, Chief Economist of the ONS.

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“Food prices once again accounted for the majority of the decline, with price increases being less than they were a year ago.”As with the previous month, increased gasoline prices caused a partial offset.

 

 

Food inflation reached its lowest level since November 2021, falling from 5% to 4%. After reaching a record of 19.2% in March 2023—the highest yearly rate in over 50 years—the rate has decreased for the 12th consecutive month.

Although energy costs have decreased recently, inflation has been gradually declining but has not yet fallen below the Bank’s goal rate of 2%.

That is, however, probably going to occur in the April number that the ONS will provide in a month, which will include the impact of this month’s dramatic £238 annual reduction in the energy price ceiling.

Core inflation, which is carefully monitored by the Bank’s Monetary Policy Committee (MPC) and excludes “volatile” items like food and energy, decreased from 4.5% to 4.2%.

But the inflation rate in the services sector only decreased slightly—from 6.1% to 6%—below what the markets had anticipated.

The rate of wage rises, another important metric monitored by the MPC, is only somewhat declining. Wage growth was still 6%, according to ONS data released this week, significantly faster than the MPC would tolerate.

“The plan is working: inflation is falling faster than expected, down from over 11% to 3.2%, the lowest level in nearly two and a half years, helping people’s money go further,” stated Jeremy Hunt, Chancellor of the Exchequer.

In addition to the £900 annual savings that the typical worker receives from our national insurance reduction, this is great news, and workers should begin to see the difference in their paychecks as well.

The European strategist at Raymond James Investment Services, Jeremy Batstone-Carr, stated: “Pricing pressures are gradually decreasing, but they are still quite near the Bank of England’s interim target levels.” Even yet, the Bank will take heart from the decline in service sector prices and look forward to relieving wage pressure in the coming months as a result of the labor market’s already gradual relaxation.

“The Bank should finally start lowering interest rates after holding them for six consecutive meetings, as the rate of inflation is expected to moderate over the course of the spring.”

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