The sun may have shone, but April was dubbed “awful” for a reason.
Higher energy bills were followed by the biggest rise in water bills for over 35 years. Add in the continued rises in prices of food and services, a spike in airfares, and you get not only the highest inflation in a year – 3.5% in the 12 months to April – but a situation where prices are rising faster than in France or Germany.
The good news is that, for more workers, pay rises are still outpacing the rate at which prices are rising. That means their money, on the whole, is stretching further. What’s more, inflation remains a lot lower than it was – that peak of 11% in late 2022 – and should stay that way.
But the rise today is not about to be immediately reversed either.
The rise in gas and electricity bills was propelled by higher wholesale global costs – the same factors that triggered the cost of living crisis a few years ago. Those wholesale costs are falling. But, due to the way our bills are set, it will take a while for that to mean lower prices for customers.
As for services inflation, part of the reason it rose in April was a spike in airfares because of the late Easter holidays this year. That distorted the figures and will be reversed. And the rise in vehicle excise duty was also a one-off.
But price pressures in other services – such as restaurant meals – remain higher than the Bank of England would like to see. And some economists worry that rises in those kind of areas suggest that bosses are passing on National insurance Contributions and other wage cost increases.
That could continue. The government’s own policies risk adding to inflation.
It’s those kind of factors that prompt economists to think that inflation could inch up further over the next few months, although they think it will remain below 4%. And won’t fall back until 3% until next year.
It is why some don’t expect the Bank of England to cut the interest rates more than one more time this year – which may come as a disappointment for the hundreds of thousands of homeowners looking to remortgage over the next year.
But there are also some factors that could help bring inflation down.
US President Donald Trump’s trade war has led to expectations of weaker global growth and so brought down the price of oil and many other commodities on world markets. That should bring petrol down further – and help curb increases in food bills, as could the deal struck wit the EU this week. And the continued uncertainty over the President’s ultimate trade policy could yet see more cheap imports from the likes of China imported here.
As ever, inflation is an uncertain beast.
As the Chancellor acknowledges, it is painful for households – particularly those whose incomes aren’t keeping up. But the outlook could be gloomier.
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