The latest consumer price index (CPI) reading has come in higher than expected at 10.1% in March as hopes that inflation would fall back into the single digits were crushed
Despite the small drop from the previous month’s 10.4%, there was little for people to cheer as the cost-of-living crisis continues to bite.
Food inflation was the worst piece of news, with an increase from 18% in February to the latest 19.1%, the highest in 45 years.
Alice Guy, head of pensions and savings at interactive investor, said that the drop “shows light on the horizon”, but it’s more “a faint glimmer rather than the full sun”.
The figures offer “cold comfort” to families who will undoubtedly have to tighten the belt.
“Kantar figures on shopping trends reveal that British shoppers are tightening the purse strings and changing their shopping habits, opting for cheaper frozen rather than fresh food to dampen the fire of sizzling inflation on their household budget, as costs are rising much faster than wages,” she said.
“Average wage inflation was 5.9% in February compared to 10.1% inflation, meaning that households need to somehow find more and more cash from a pot that’s diminishing in real terms.”
Today’s reading wasn’t a surprise to Emma Mogford, manager of the Premier Miton Monthly Income fund, who stressed how “increases in interest rates by central banks can take more than a year to impact the real economy”.
Meanwhile, Danni Hewson, head of financial analysis at AJ Bell, questioned how much more work the Bank of England still has to do.
“Reacting to today’s figures, markets are now pricing in at least two further hikes taking interest rates up to 4.75% and are split on whether central bankers will need to go even further after that crucial core inflation number remained stubbornly static,” she said.
“And what’s really important to note is that although the rate of inflation may drop back dramatically later this year as predicted, that doesn’t mean prices as a whole will start falling.”
Yet some prices are coming down, as Hugh Gimber, global market strategist at JP Morgan Asset Management, noted.
“Stabilising energy prices will help to bring inflation lower over the second half of the year, but it is increasingly evident that an extended period of below-trend growth will be required to rein in core price pressures,” he said.
“Another 25 basis point rate hike appears highly likely in May and the Bank must stand ready to take further action unless economic data shows more definitive signs of cooling. Policymakers have come a long way in their fight against inflation. Going forward, the biggest mistake would be to claim victory prematurely.”
Rob Morgan, chief investment analyst at Charles Stanley, said today’s reading was “a decade’s worth of ‘normal’ inflation in just two years” and predicted ongoing difficulties in the housing market.
“With the Bank of England set to increase rates again, the difficulties in the housing market look set to continue,” he said.
“So far, many households with fixed or discounted rates have been insulated, but if interest rates remain at higher levels more will be affected as time goes on. This will have greater knock-on consequences for consumer spending as the months go by.”