CPI inflation accelerates to 0.7% in March

CPIH inflation, which includes owner occupiers’ housing costs, rose by 1.0% in the 12 months to March, up from 0.7% to February.

On a monthly basis, CPI rose by 0.3% in March and CPIH increased by 0.2%, compared with little change in March 2020.

Rising prices for transport, fuel and clothing resulted in the largest upward contributions to the change in the CPIH 12-month inflation rate between February and March 2021.

Janine Boshoff, NIESR economist, said: "Annual headline inflation increased to 0.7% in March, up from 0.4% recorded in February, due largely to price increases in the transport category. Base effects and the gradual easing of the winter lockdown could introduce some volatility over the short term, as items in the non-essential retail, restaurant and hotels categories are re-introduced in the calculation of consumer inflation. Our measure of underlying inflation, which excludes extreme price movements, increased to 0.6% in March from 0.2% in February.”

Paul Craig, portfolio manager at Quilter Investors, commented: “The UK has reached a turning point in its economic reaction to the pandemic where price growth is now on an upward trajectory, and should remain so for some time to come. Year-on-year consumer price growth slowed to 0.4% in February from 0.7% in January, primarily due to falling prices in clothing and footwear.

“Now we have year-on-year CPI inflation ticking back up to 0.7% in the 12 months to March 2021, and year-on-year CPIH up to 1% due to rising costs of transport, particularly motor fuels, and clothing. Food and non-alcoholic beverages continue to drag inflation down.

“From here, inflation may tick markedly higher if the steady drip of consumer spending morphs into a waterfall as lockdown restrictions are lifted and households spend some of their accumulated pandemic savings.

“But consumers turning on the spending taps once again shouldn’t evoke too much concern at the Bank of England. Even once restrictions are lifted, we will still be living in economically abnormal times, and the Bank will give the economy time to normalise before beginning to worry about inflation.

“We are a long way away from central banks moving interest rates higher, and indeed the MPC has said they will not tighten policy until the economy has made up its pandemic losses and the inflation target has been met. This should give investors confidence to hold their nerve and remain diversified for the normalisation to come.”