Inflation above target for 40th straight month

Ben Southwood
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INFLATION stayed above the Bank of England’s two per cent target for the 40th straight month in March, official data showed yesterday.

The consumer prices index (CPI) grew 2.8 per cent over the year to March, the Office for National Statistics (ONS) said, as in February. This overall level masked individual prices rising as fast as 23.3 per cent (postal services) and falling as rapidly as 15.9 per cent (cameras). And it suggested the tight squeeze on real incomes had still not let up.

Market forecasts suggest inflation will rise in the long term – after briefly falling towards the two per cent annual rate the Bank is tasked with achieving. Index-linked gilt prices reflect an assumption of inflation of above three per cent per year for any time horizon above five years – rising to around four per cent for horizons of 20 years or longer.

“The credibility of the Bank’s current inflation target is being undermined by the political push for economic recovery,” warned Patrick Bloomfield at Hymans Robertson.

Inflation stuck above target as fruit prices fly

Meanwhile Eurozone and US annual inflation dipped, driven by a smaller March price rise than last year.

The Eurozone CPI grew 1.7 per cent over the year to March, down from 1.8 per cent in February and 2.7 per cent a year earlier, as gloom continues to surround the bloc’s economies. Hardest-hit Greece actually saw 0.2 per cent deflation, potentially slowing the real wage falls economists believe necessary to rebalance their competitiveness.

This came as US CPI growth fell below its two per cent target to 1.5 per cent over the last 12 months – despite continued blasts of accommodative monetary policy. This came after the exactly on-target two per cent inflation logged in February.

Capital Economics’ Paul Ashworth predicted the index would fall further going into the summer, and should “remain well below the Fed’s target for some considerable time.”