Mortgage jump stokes inflation


Headline inflation jumped by 0.6 per cent last month as higher mortgage rates fed through to the retail price index. But the annual rate only inched up to 3.4 per cent. And RPIY, the Bank of England's preferred measure of core inflation, which excludes mortgage interest payments and indirect taxes, eased from an annual rate of 1.9 per cent in January to 1.8 per cent.

RPIY was published by the Central Statistical Office yesterday for the first time on a regular monthly basis

The figures eased fears in the City of an imminent increase in interest rates to deal with the recent fall in sterling, which has more than offset February's rise in base rates. "The authorities can probably afford to wait a further month to see if the pound's drop is actually sustained," said Michael Saunders, UK economist at Salomon Brothers.

Publication of RPIY on a regular basis is bound to arouse suspicion that the Government is choosing to redefine inflation in a way that draws attention away from its own role in pushing up the price level through indirect taxes. The excise duty increases of the last Budget continued to boost inflation last month, with alcohol and tobacco jumping by 0.8 per cent on January. But from the authorities' viewpoint, RPIY has the advantage that the means being used to control inflation - both fiscal and monetary - are not part and parcel of the target rate.

Expectations of price rises have become slightly more modest, according to the latest survey of industrial trends made by the Confederation of British Industry. The balance of firms planning to increase rather than cut prices this month was still high at 27 per cent, but lower than in January and February. One company in two thought their prices would not change over the next four months.

Sudhir Junankar, the CBI's economics director, said: ``The outlook for inflation is a little more encouraging than earlier in the year.''

Export orders reached another record, with 32 per cent of the 1,325 firms surveyed reporting levels above normal. The positive balance of 14 per cent with above-normal over below-normal order books was the highest since April 1977. The companies included in the survey account for about half Britain's manufactures exports.

Domestic orders were strong too. A positive balance of 11 per cent had above-normal orders, the second-highest in the survey's history. Firms also expect strong gains in output in the next four months.

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