Inflation rebounds sharply in April as travel costs soar

The annual inflation rate is at its highest since October 2008, according to the Office for National Statistics Inflation in Britain jumped to its highest level in two-and-a-half years last month, owing to soaring travel costs around Easter and higher duty on alcohol and tobacco. The annual increase in the consumer prices index to 4.5%, from 4% in March, wrongfooted the City and intensifies the dilemma for the Bank of England over how much longer it can keep interest rates low to support the flagging economy. It means governor Mervyn King will have to write another letter to the chancellor, George Osborne, to explain why inflation is so far above the Bank’s 2% target. Consumer prices rose 1% in April from March, taking the annual inflation rate to the highest since October 2008, according to the Office for National Statistics. City economists had only expected a small rise to 4.2%. “Although inflation was expected to jump back up, the magnitude of the increase is surprising. However, the ONS has said the timing of Easter had a significant impact on the data, so we would interpret them with an element of caution,” said Hetal Mehta, UK economist at Daiwa Capital Markets. However, Mehta does not expect the Bank to raise rates in response to high inflation until early next year. “While inflation still remains well over the Bank’s target – and is likely to rise even further in the next couple of months as higher commodity prices feed through – the current inflationary forces are largely temporary in nature, and a marked fall in January next year is expected once the VAT increase falls out of the calculations. As such, we still think the Bank will look through the short-term spike.” “Core” inflation, which strips out volatile items such as food and fuel, rose to 3.7%, the highest on record. Inflation has been above the Bank’s target since the end of 2009 and the central bank warned in its latest projections last week that it could hit 5% later this year, although it believes that most of the factors pushing up prices are temporary. The ONS travel costs rose because of the unusually late timing of Easter this year. In previous years, some of this was reversed the following month. The annual retail prices inflation (RPI) rate, which includes more housing costs and is the benchmark for pensions and many wage deals, eased to 5.2% from 5.3% in March. Inflation Economics Bank of England Julia Kollewe guardian.co.uk

Posted by on May 17, 2011. Filed under News, Politics, World News. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.