Inflation hits 2.5% target and is expected to go lower

Inflation hit its target for the first time in more than two years last month. In the latest in a flow of rosy economic statistics, figures yesterday showed the underlying rate of retail price inflation declined to 2.5 per cent in April from 2.7 per cent in March.

The news that Kenneth Clarke had delivered on his promise to hit the target by the end of the last parliament came a month too late for the Conservatives. Michael Saunders, UK economist at Salomon Brothers, said: "Ken Clarke could be forgiven a quiet moment of self-congratulation."

Figures earlier in the week showed the last government had bequeathed the new one lower inflation at the factory gate, a big fall in claimant unemployment last month and somewhat slower-than-expected earnings growth.

Inflation is likely to fall even lower during the next few months due to the impact of the strong pound on prices further back in the chain. But most economists agree with the Bank of England's diagnosis that the target measure will then start to climb again thanks to the strength of the economy.

Sharp falls in seasonal food prices, especially vegetables, helped take the target inflation measure, the retail price index less mortgage interest payments, down to the 2.5 per cent target for the first time since December 1994.

The headline level of retail prices increased by 0.6 per cent during April, while the annual rate fell to 2.4 per cent from 2.6 per cent in March.

Seasonal foods last month cost 13.5 per cent less than a year ago. Vegetables such as potatoes and cauliflowers have fallen sharply in price during the past two months.

Petrol prices fell slightly in April, and the rate of increase in goods prices slowed further. Even so, retailers have taken advantage of lower costs as a result of the strength of the pound to build up their margins.

"The core components of goods price inflation remain stubbornly high, despite collapsing producer and import price inflation," said Adam Cole at James Capel.

This echoed a remark in the Bank of England's Inflation Report earlier this week. The Bank noted that the pass-through from the higher exchange rate to retail prices had not been as big as past experience would have suggested.

The price of services increased at a much faster rate than high street goods prices in the year to April. At 3.3 per cent, it was almost twice as high as goods inflation of 1.7 per cent.

Paul Turnbull at Merrill Lynch said: "The inflation outlook this year is pretty good but looking further ahead there will be an upturn."

He added that it would be a modest increase, especially now the Bank of England can set interest rates independently.

Other analysts were still more optimistic about price prospects. Jonathan Loynes at HSBC Markets said: "The very steep fall in factory gate inflation over the last year is feeding through to the retail environment. The process has much further to go."

Separate figures yesterday showed an increase in the level of mortgage advances in April, rather than the usual seasonal decline. But Barclays Mortgages said the growth in lending was lower in than previous months.

Jim Chadwick, marketing director, said: "The dampening of growth in demand for mortgages should be seen as beneficial to the market, heralding a period of greater stability."

Sport
Lionel Messi pictured after reaching the final
world cup 2014
Sport
Lionel Messi and Thomas Muller have shone brightest for Argentina and Germany respectively on their way to the World Cup final
Sport
Brazilian fans watch the match for third place between Brazil and Netherlands
Brazil 0 Netherlands 3: Dutch pile on the misery in third place playoff
Arts and Entertainment
TV The follow-up documentary that has got locals worried
PROMOTED VIDEO
Arts and Entertainment
Eminem's daughter Hailie has graduated from high school
music
News
Ian Thorpe had Rio 2016 in his sights
people
Arts and Entertainment
Original Netflix series such as Orange Is The New Black are to benefit from a 'substantial' increase in investment
TVHoax announcement had caused outrage
Life and Style
Swimsuit, £245, by Agent Provocateur
fashion

Diving in at the deep end is no excuse for shirking the style stakes

News
One Direction star Harry Styles who says he has no plans to follow his pal Cara Delevingne down the catwalk.
peopleManagement confirms rumours singer is going it alone are false
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Voices
Mrs Brown's Boy: D'Movie has been a huge commercial success
voicesWhen it comes to national stereotyping, the Irish know it can pay to play up to outsiders' expectations, says DJ Taylor
Arts and Entertainment
Curtain calls: Madani Younis
theatreMadani Younis wants the neighbourhood to follow his work as closely as his audiences do
Arts and Entertainment
'Deep Breath' is Peter Capaldi's first full-length adventure as the twelfth Doctor
TVFirst episode of new series has ended up on the internet
Life and Style
Douglas McMaster says the food industry is ‘traumatised’
food + drinkSilo in Brighton will have just six staple dishes on the menu every day, including one meat option, one fish, one vegan, and one 'wild card'
Sport
Mario Balotelli, Divock Origi, Loic Remy, Wilfried Bony and Karim Benzema
transfersBony, Benzema and the other transfer targets
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Information Security Manager (ISO 27001, Accreditation, ITIL)

£70000 per annum: Harrington Starr: Information Security Manager (ISO 27001, A...

Biztalk - outstanding opportunity

£75000 - £85000 per annum + ex bens: Deerfoot IT Resources Limited: Biztalk Te...

Trade Desk Specialist (FIX, Linux, Windows, Network Security)

£60000 per annum: Harrington Starr: Trade Desk Specialist (FIX, Linux, Windows...

Service Desk Analyst (Windows, Active Directory, ITIL, Reuter)

£35000 per annum: Harrington Starr: Service Desk Analyst (Windows, Active Dire...

Day In a Page

Iraq crisis: How Saudi Arabia helped Isis take over the north of the country

How Saudi Arabia helped Isis take over northern Iraq

A speech by an ex-MI6 boss hints at a plan going back over a decade. In some areas, being Shia is akin to being a Jew in Nazi Germany, says Patrick Cockburn
The evolution of Andy Serkis: First Gollum, then King Kong - now the actor is swinging through the trees in Dawn of the Planet of the Apes

The evolution of Andy Serkis

First Gollum, then King Kong - now the actor is swinging through the trees in Dawn of the Planet of the Apes
You thought 'Benefits Street' was controversial: Follow-up documentary 'Immigrant Street' has got locals worried

You thought 'Benefits Street' was controversial...

Follow-up documentary 'Immigrant Street' has got locals worried
Refugee children from Central America let down by Washington's high ideals

Refugee children let down by Washington's high ideals

Democrats and Republicans refuse to set aside their differences to cope with the influx of desperate Central Americas, says Rupert Cornwell
Children's books are too white, says Laureate

Children's books are too white, says Laureate

Malorie Blackman appeals for a better ethnic mix of authors and characters and the illustrator Quentin Blake comes to the rescue
Blackest is the new black: Scientists have developed a material so dark that you can't see it...

Blackest is the new black

Scientists have developed a material so dark that you can't see it...
Matthew Barzun: America's diplomatic dude

Matthew Barzun: America's diplomatic dude

The US Ambassador to London holds 'jeans and beer' gigs at his official residence – it's all part of the job, he tells Chris Green
Meet the Quantified Selfers: From heart rates to happiness, there is little this fast-growing, self-tracking community won't monitor

Meet the 'Quantified Selfers'

From heart rates to happiness, there is little this fast-growing, self-tracking community won't monitor
Madani Younis: Five-star reviews are just the opening act for British theatre's first non-white artistic director

Five-star reviews are just the opening act for British theatre's first non-white artistic director

Madani Younis wants the neighbourhood to follow his work as closely as his audiences do
Mrs Brown and her boys: are they having a laugh?

Mrs Brown and her boys: are they having a laugh?

When it comes to national stereotyping, the Irish – among others – know it can pay to play up to outsiders' expectations, says DJ Taylor
Gavin Maxwell's bitter legacy: Was the otter man the wildlife champion he appeared to be?

Otter man Gavin Maxwell's bitter legacy

The aristocrat's eccentric devotion to his pets inspired a generation. But our greatest living nature writer believes his legacy has been quite toxic
Joanna Rowsell: The World Champion cyclist on breaking her collarbone, shattering her teeth - and dealing with alopecia

Joanna Rowsell: 'I wear my wig to look normal'

The World Champion cyclist on breaking her collarbone, shattering her teeth - and dealing with alopecia
Bill Granger recipes: Our chef gives raw ingredients a lift with his quick marinades

Bill Granger's quick and delicious marinades

Our chef's marinades are great for weekend barbecuing, but are also a delicious way of injecting flavour into, and breaking the monotony of, weekday meals
Germany vs Argentina World Cup 2014 preview: Why Brazilians don't love their neighbours Argentina any more

Anyone but Argentina – why Brazilians don’t love their neighbours any more

The hosts will be supporting Germany in today's World Cup final, reports Alex Bellos
The Open 2014: Time again to ask that major question - can Lee Westwood win at last?

The Open 2014

Time again to ask that major question - can Lee Westwood win at last?