Inflation likely to breach the 3% barrier during the summer - EY ITEM Club comments

11 April 2017

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  • Inflation holds steady in March
  • But upward move is likely to resume soon
  • CPI measure likely to peak above 3% in the summer

Martin Beck, senior economic advisor to the EY ITEM Club, comments:

“CPI inflation held steady at 2.3% in March, as the consensus expected. That it did not continue to accelerate was largely due to strong base effects, with last March having seen a robust reading for core inflation, reflecting the early timing of Easter, and the beginning of the climb in petrol prices. But the March data is likely to represent only a temporary pause in the upward march in inflation. April will see the Easter effects unwind and more of the recent increases in domestic energy bills hitting the inflation index.

“Today’s producer prices release suggests that the impact of the weaker pound on manufacturers’ input costs may have peaked. However, there is still some way to go until these pressures have fully passed along the supply chain to consumers, so the headline measures of inflation are likely to climb further over the coming months.

“It is looking increasingly likely that the CPI measure will breach the 3% barrier during the summer, triggering a letter of explanation from Mark Carney to the Chancellor. However, given that there remains scant evidence that this will be anything other than a temporary, sterling-driven spike, we continue to see the chances of an early rate hike as being very low.”