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UK inflation hits 15-month high, boosted by airfares

UK inflation hits 15-month high, boosted by airfares
April 12, 2016
LONDON – British inflation hit its highest level in 15 months in March as an earlier-than-usual Easter holiday pushed up airfares, according to data that is likely to reassure the Bank of England that near-zero price growth is coming to an end. Sterling and British government bond yields hit a one-week high after the data showed consumer prices up 0.5 percent year on year, picking up speed from 0.3 percent in February and topping a forecast of 0.4 percent by economists in a Reuters poll. The core inflation measure watched closely by the Bank of England also rose, hitting 1.5 percent -- its strongest since October 2014 and above all forecasts in a Reuters poll. "The economy's movement away from deflation resumed after stalling in February," Scott Bowman, UK economist at Capital Economics, said. British inflation is recovering after falling below zero. But it is still well the below the Bank of England's 2 percent target, and few economists expect the Bank to raise rates before early next year amid fears that a weakening global economy, falls in share prices and uncertainty around Britain's European Union membership referendum might hamper the recovery. Shoppers reined in their spending last month, according to two surveys published on Tuesday. Consumer prices rose 0.3 percent in the first quarter as a whole, just shy of a recent BoE forecast of 0.4 percent. The BoE also said in February it expected inflation to stay below 1 percent all year and to undershoot its target until 2018, due to the global slump in oil prices, the effect of past rises in sterling and lacklustre wage growth. AIRFARES TAKE OFF Airfares surged 22.9 percent on the month in March, reflecting the timing of the Easter holidays, which last year fell in April. Clothing and footwear also contributed to higher inflation while food and petrol prices dragged. Core consumer price inflation - excluding energy, food, alcohol and tobacco -- rose to its strongest since October 2014. BoE Governor Mark Carney has said a sustained rise in that measure will be needed before the Bank starts to raise rates. "This is the first sign of a pick-up after effectively stalling over the previous last six months or so. Accordingly, the first rate hike looks to still be some way in the distance," Capital's Bowman said. There were other signs that inflation pressure is slowly building. Factory gate prices fell 0.9 percent year-on-year, the smallest decrease since November 2014. The ONS said house prices rose 7.6 percent in the 12 months to February, slowing slightly from January but still stronger than for much of last year. –Reuters
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