Rising energy prices have pushed the headline rate of inflation up to its highest level this year, although the increase was less than both the Bank of England (BoE) and economists had been predicting.
Data from the ONS shows that the Consumer Prices Index 12-month rate – which compares prices in the current month with the same month a year earlier – rose to 2.1% in April. This was up from 1.9% in the previous month and is the highest figure reported so far this year.
A hike in energy bills as a result of Ofgem’s decision to raise its price cap was the biggest upward contributor to April’s figure, while rising airfares, which were influenced by the timing of Easter, also had an upward impact. These increases, however, were partially offset by a downward contribution from some recreational and cultural items, particularly computer games and package holidays.
Although the latest data has seen the rate of inflation edge just above the BoE’s 2% target, the figure was actually slightly lower than economists had been expecting. Indeed, the consensus figure in a Reuters poll had been 2.2%, a similar figure to the BoE’s prediction.
The inflation statistics also suggest there is less short-term pressure in the consumer prices pipeline than economists had feared. Manufacturers’ costs for raw materials were 3.8% higher in April 2019 compared to year earlier levels, significantly below the 4.5% consensus forecast.
After last month’s Monetary Policy Committee meeting, the BoE said it was expecting growth and inflation to pick up over the next two years and that interest rate increases could therefore be ‘more frequent’ than markets had been anticipating. While economists still expect inflation to drift higher in the coming months, this latest set of statistics suggests the immediate outlook remains relatively subdued.