Press release

19 Apr 2023 London, GB

Inflation fell in March, but underlying pressures may concern the Monetary Policy Committee – EY ITEM Club comments

Consumer Price Index (CPI) inflation fell to 10.1% in March. The modest fall was entirely driven by strong base effects in petrol prices. However, core and services inflation remained unchanged

Press contact
James White
James White

Senior Executive, Media Relations, Ernst & Young LLP

Communications professional experienced in public relations, journalism and media relations. Aston Villa supporter. Passionate about sports and automotive. Former sports journalist.

email LinkedIn
Related topics Growth

  • Consumer Price Index (CPI) inflation fell to 10.1% in March. The modest fall was entirely driven by strong base effects in petrol prices. However, core and services inflation remained unchanged.

  • Stickiness in these measures, alongside stronger-than-expected activity, healthy jobs growth and a pickup in private sector pay growth, will probably tip the balance towards the Monetary Policy Committee increasing rates again in May. The EY ITEM Club thinks headline inflation should fall quickly as the year progresses, but the recent persistence of underlying price pressures poses a risk to this.

Martin Beck, chief economic advisor to the EY ITEM Club, says: “After a surprise increase in February, CPI inflation resumed its downward path in March, falling to 10.1% from 10.4%. The fall in the annual rate was more than accounted for by falling petrol prices. However, mitigating this was a further acceleration in food price inflation, which reached its highest level in over 45 years.

“March saw both core and services sector inflation remain unchanged at 6.2% and 6.6% respectively. Stickiness in these measures, the latter of which the MPC often cites as an indicator of domestically generated price pressures, will concern the committee in advance of its May meeting. The fact that this follows the latest labour market data, which showed healthy jobs growth and a surprise pickup in private sector wage rises, and a stronger-than-expected performance from the economy, will probably tip the balance towards another rate rise next month. 

“The EY ITEM Club still thinks headline inflation will fall at pace this year, mainly reflecting strong base effects and falling wholesale energy prices, which should feed through into lower household bills from the summer. Less expensive energy will likely directly lower inflation, and by reducing businesses’ costs, should indirectly bear down on core and services inflation. However, the recent persistence of underlying price pressures poses a risk to just how quickly inflation will fall.”