The annual rate of UK CPI inflation remained unchanged in March at 2.3%.  However, this headline conceals different trends within goods and services.

Goods inflation has been accelerating rapidly over the last five months and last month hit 2.5% y/y. This represented its highest rate since June 2013 and was the first time in almost 5 years that the price rises for consumer goods outpaced consumer services.  This reflects the depreciation of sterling feeding through into higher import costs e.g. food and fuel.

Consumer services inflation eased from 2.8% in February to 2.1% for March – a 23-month low. This slowdown has been aided by the timing of Easter. Last year Easter was early and occurred in March.  Hotel and airline fares normally rise during the school holidays.  This year these price hikes will take place in April not March. This explains why air fares plunged 23% y/y in March 2017.

We can therefore expect notable increases in transport services (particularly airfares) in April. Prepare for UK CPI to move significantly higher in the months ahead.

As expected, food price inflation is starting to filter through with food prices 1.6% higher last month relative to a year ago. This represents the fastest rate of food price inflation in 2 years.  Electricity, Gas & Other fuels saw annual price rises (+1.2%) for the first time since November 2014. Double-digit electricity & gas price hikes will become apparent in the April figures. Meanwhile the fall in petrol /diesel prices in recent weeks has led to an easing in the pace of transport fuels & lubricant price inflation from 19.4% y/y in February to 17.0% y/y in March. Consumers are now experiencing the simultaneous rise in the price of food, petrol prices and utility bills (gas & electricity) for the first time since August 2013. Rising inflationary pressures will increase the gradient on the economic growth treadmill. Consumer spending and economic growth will start to slow in the coming months.