Consumers hit as rate of inflation rises

The Consumer Price Index (CPI) rate of inflation rose to 3.5 per cent in March, from 3.4 per cent in February, the Office for National Statistics (ONS) said, halting five months of declines and defying City expectations that it would hold steady. Food and non-alcoholic drinks fell 0.5 per cent on the month but this compared with a 1.4 per cent fall last year when supermarkets and other retailers offered a wider range of sales and special offers, while petrol and diesel pump prices hit record highs.

Economists said the rise was likely to be temporary but would still concern Bank of England governor Sir Mervyn King and the Monetary Policy Committee (MPC), which previously predicted that CPI would fall to the Government’s two per cent target by the end of this year.

The Bank will be less inclined to pump more money into the economy through its quantitative easing programme if inflation continues to remain above target, analysts said.

But a spokesman for the Treasury said inflation had fallen by a third since September and was expected to continue falling this year.

Households were squeezed by high prices and sluggish wage growth throughout 2011 but pressure has eased this year due to the waning impact of last year’s VAT rise, falling energy, food and commodity prices and a number of bill cuts from utility providers.

Vicky Redwood, chief UK economist at Capital Economics, said the halt in the downward trend “should be only temporary.”

She said: “Nonetheless, today’s figures could reduce the chances of more QE being announced at May’s MPC meeting. Inflation in the first quarter as a whole was a touch higher than the MPC forecast in February and some members have been expressing concern that inflation might not fall as sharply as February’s forecasts showed.”

The average cost of petrol and diesel at the pump hit a record high in March, up to £1.38 and £1.46 a litre respectively but the ONS said the rise was similar to last year so had little impact on the rise in inflation.

Clothing and footwear prices were up 2.2 per cent, driven by women’s outerwear.