Headline inflation slowed less than expected in March, according to official data, which showed that food prices are still rising and piling pressure on the cost of living.
Consumer price inflation dipped to 10.1 per cent, down from 10.4 per cent in February. It is the second consecutive month where inflation has proven stronger than expected. Economists had forecast a fall to 9.9 per cent.
The Office for National Statistics said food and drink price inflation accelerated again in March, rising by 19.2 per cent last month compared with a year earlier, after an 18.2 per cent increase in February. The price of bread and cereals increased by the fastest on record.
A measure of core inflation, which strips out food and energy, was unchanged at 5.7 per cent.
March’s inflation data is being closely watched by rate-setters at the Bank of England, who are preparing to make their next interest rate decision in May. Investors expect that the nine-member monetary policy committee will carry out at least one more rate rise after borrowing costs have been lifted to the highest level since 2008.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “The drop [in inflation] is too modest for the Monetary Policy Committee to stop raising rates.”
Inflation has been stuck in double digits since October, when a steep rise in energy prices helped to push up the rate of price growth. However, while energy costs have subsided in recent months, inflationary pressure has remained high due to runaway food prices that have climbed to the highest in decades. Surging grocery price inflation has also driven up prices in restaurants, cafés, and supermarkets this year.
Grant Fitzner, chief economist at the ONS, said: “The main drivers of the decline [in inflation] were motor fuel prices and heating oil costs, both of which fell after sharp rises at the same time last year. Clothing, furniture and household goods prices increased, but more slowly than a year ago.
“However these were partially offset by the cost of food, which is still climbing steeply, with bread and cereal price inflation at a record high.”
Jeremy Hunt, the chancellor, said the government “must continue with our efforts to drive down inflation so we can ease pressure on families and businesses.
“We are on track to do this, with the Office for Budget Responsibility forecasting we will halve inflation this year. We’ll continue supporting people with cost-of-living support worth an average of £3,300 per household over this year and last, funded through windfall taxes on energy profits.”
Commenting on today’s data from the Office of National Statistics, Kitty Ussher, Chief Economist at the Institute of Directors, said: “Business remains extremely concerned by the rate of inflation and wants to see it under control.
“While it is a relief that the headline rate of inflation is now pointing downwards again, following the surprise rise last month, the Bank of England’s job is not yet done. The improvement this month is predominantly due to falling transport prices which, although welcome, hides an underlying stickiness in core inflation which at 6.2% has not yet started to fall. And food inflation is still rising – up from 18% to 19.1% in March.
“Taken together with yesterday’s strong labour market data it is now clear that there is more demand in the economy than the Bank of England had expected in Q1.
“The headline rate will come down a notch in April as base effects from last year work their way through the data, but to address the underlying issues the MPC still needs to raise rates again when it meets in a few weeks’ time.”