Inflation Update

The ONS issued its UK Inflation update this morning. Despite predictions and expectations for a bigger reduction, the March headline figure was reported at 10.1%.

The graphic below illustrates the trend globally, with the USA seeing falls ahead of the UK & Europe.

Inflation momentum remains on a downward trajectory and we would hope to see further falls as 2023 progresses, particularly, as the year-on-year energy price reductions start to impact the data.

Food and drink were the greatest influencers, with bread and cereals showing its highest inflationary rate since 1989, when ONS started recording this data. On the other hand, transport costs, and in particular petrol prices falling for the fourth month in a row, has been one of the greatest downward contributors.

We are seeing a softening in the labour market as job vacancies fall and unemployment rising slightly. It is of note however, that vacancies are still 35% higher than their pre-pandemic average. Despite this, there is a risk that rising wages could feed through to inflation figures as wage growth remains persistent. 

What does all this mean?

Inflation is a long way off the Bank of England 2% target, with the hope of some accelerated reductions later in the year, a bumpy ride is to be expected which means there may still be further hikes in interest rates.