Economics: Sharp rise in inflation

Date : 25 May 2021

Annual “all items” inflation rose from +1.0% in March 2021 to +1.6% in March, when measured by the CPIH method favoured by government and its agencies.

This sharp increase is not unexpected – it has been forecast for some time by the Bank of England. It also reflects growing cost pressure for businesses of many kinds.

The increase comes at a time when shopper confidence is picking-up after the Covid emergency – hopefully, it will not cause vulnerable households to “spook”.

Transport, household utilities and clothing were major contributors to the increase in CPIH. Price change for food and drink remained negative, moving from -1.4% in March 2021 to -0.5% in April.

The old RPI measure is no longer recognised as a part of “official” ONS data, but it is retained because it has good coverage of housing costs and therefore gives a good idea of the cost pressures faced by households.

The “all items” RPI inflation measure moved from +1.5% in March to +2.9% in April. The accompanying chart shows the “step-up” in inflation very clearly.

It also shows a swing in price trends for motor fuel (mauve) and household utilities (pink) – through most of the Covid emergency, these prices were negative, helping to support household spending power, but in April 2021, this benefit ended.