Some good economic news: Inflation drop is bigger than expected

 

Falling prices at the petrol pumps led to a bigger-than-expected drop in inflation in April, the first easing in the annual rate of price rises for six months.

The Office for National Statistics (ONS) said consumer prices index (CPI) inflation dipped to 2.4 per cent in April, from 2.8 per cent in March, as lower fuel costs and air fares pushed overall transport prices down for the first time in almost four years.

But the temporary dip in inflation triggered by weaker commodity prices will do little to ease the financial pain on households, with inflation expected to spike above 3 per cent in the summer.

The pace of the fall surprised economists, who had expected CPI inflation to edge down to about 2.7 per cent in April.

Howard Archer, economist at IHS Global Insight, said: "April's marked drop in inflation to a seven-month low of 2.4 per cent is very welcome news, providing significant relief for both consumers and the Bank of England."

But Alan Clarke at Scotiabank said while it was a "big downward surprise", much of the fall is likely to be temporary.

The Treasury said it was "good news for families and businesses", adding the economy is "healing".

Plunging global commodity markets have hit the price of Brent crude oil in recent weeks, driving petrol and diesel costs lower.

Petrol prices fell by 2.1p over the month to 136.4p a litre compared with a 3.2p rise a year earlier. Diesel was 3.9p lower to 141.7p per litre, compared with a 2.1p rise a year ago.

Air fares fell by 6.4 per cent on a month earlier, compared with a rise of 7.4 per cent a year earlier.

The only notable upward effect came from food and non-alcoholic drinks. Prices rose by 0.7 per cent on the month, compared with a 0.1 per cent fall a year earlier, as farmers pushed through price rises after the freezing winter ruined crops.

CPI inflation fell for the first time since last autumn, but is expected to provide only a temporary respite for households as rising gas, water and electricity bills feed through to households over the summer.

At 2.4 per cent, it far outstrips wage rises which grew at just 0.4 per cent in the first quarter versus a year earlier.

Inflation has remained stubbornly above the Bank of England's 2 per cent target since December 2009.

PA

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