March CPI data indicates a real problem with inflation

14th April 2015 By: Ranko Berich

UK CPI – 14/04/15

Mark Carney and the Bank of England have been quick to blame recent falls in headline CPI inflation on cheaper food and fuel, but March’s data suggests the UK could have a real problem with a lack of inflation.

What really stands out in this month’s report is that even once food and fuel are removed from headline CPI, inflation still fell to 1 per cent year-on-year. This makes it far more difficult for the Bank to claim that inflation will return to target after the current shock to fuel price recedes.

A quarter or two more of deterioration such as this and the Bank will be forced to discuss rate cuts in earnest. With crude oil markets still bearish the final hope for UK inflation is the prospect of a noticeable pickup in wages, placing even more attention on this Friday’s Average Earnings Index. If the figures fail to show improvement, both sterling and the Bank of England will come under serious pressure.