Bigger-than-expected jump in inflation - but no cause for panic

CPI inflation has soared to 4.5%, its highest level in two and a half years. But the timing of Easter had a lot to do with it...

by James Taylor
Last Updated: 19 Aug 2013
On the face of it, today's inflation figure looks like another shocker: the Consumer Price Index jumped to 4.5%, up from 4% in March. That's well above the 4.1% the City was expecting, and puts CPI inflation at its highest level since October 2008. This will inevitably lead to more calls for the Bank of England to hike interest rates - but we suspect Governor Mervyn King is unlikely to see this as a good reason to change tack. The sole reason for the bigger-than-expected jump was an increase in transport fares - which was largely because Easter fell in April rather than March. Lower interest rates aren't going to help that problem; and it's hard to see them boosting growth either...

The Office for National Statistics said that both air and sea transport costs jumped hugely in April - by 29% and 22% respectively, to be precise. This was responsible for 0.4% of the overall increase, i.e. the precise amount by which CPI surpassed expectations. And there are no prizes for guessing why: Easter falling in April meant the travel industry was able to hike its prices for long-suffering families desperate to take the kids to Torremolinos during the school holidays. Alcohol and tobacco prices were also up substantially (by 5.3%), reflecting the impact of the latest tax hikes - and, perhaps, our collective need to take the edge off the prevailing economic gloom.

Still, today's figures rather prove the point that last month's fall in CPI was a temporary respite - and that the general inflationary trend remains upwards, thanks to external pressures like high commodity prices. To be fair, that's also the Bank of England's view: King and co reckon inflation will hit 5% later this year, before falling back down to 2% over the next couple of years as these extrenal pressures subside. This will happen without the need for interest rate hikes, King argues - in fact, any such hikes will only constrain the recovery further, because we'll be shelling out more money servicing our debts.

Today's figures means King will have to send his sixth consecutive letter of explanation to Chancellor George Osborne. But the good news is that he can just photocopy the last one and stick in a par about Easter holiday travel. Easy game, this Bank of England Governing lark.

Find this article useful?

Get more great articles like this in your inbox every lunchtime

How not to handle redundancies

It can come back to bite you if you get it wrong.

Sarah Willingham: I will never start another business again

The entrepreneur and investor on top leadership skills, pivotal career moments and Dragons' Den.

A new etiquette for video meetings

Virtual calls are not the same as in-person conversations, so we need to change the...

There's opportunity in this recession

A Schumpeterian view of closing businesses.

Is it okay to spy on my staff if I think they're slacking ...

Everything you wanted to know about employee surveillance but were afraid to ask.

The psychology of remote working

In depth: The lockdown has proven that we can make working from home work, but...