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Economists take consumer prices inflation rise in their stride

ANNUAL UK consumer prices index inflation climbed from 1.6% in March to 1.8% in April, exceeding economists' forecasts but remaining below the 2% target, official figures have shown.

This was the first rise in annual CPI inflation since June last year, when inflation rose to 2.9%.

However, economists took the higher than expected April inflation figures, published yesterday by the Office for National Statistics, in their stride.

In particular, they cited the upward impact on annual inflation of a sharp rise last month in transport costs, particularly air fares, resulting from Easter falling later this year than in 2013.

Economists had projected a rise in annual CPI inflation in April, but only as far as 1.7%.

Samuel Tombs, UK economist at consultancy Capital Economics, said: "Rather than indicating that the economic recovery is causing price pressures to build, the increase in CPI inflation from 1.6% to 1.8% in April, almost entirely reflected the impact of the later timing of Easter."

The ONS cited air fares and sea fares as the two largest contributors to the rise in the annual CPI inflation rate in April, noting that these had increased by 18% and 22 % respectively during the month.

It contrasted these sharp rises with a fall of 6% in air fares and a rise of only 3% in sea fares in April last year.

The ONS said: "The timing of Easter was likely a factor in both cases, with the Easter weekend falling within the April collection period for these services this year, but mainly missing the March and totally missing the April price collection periods a year ago."

Meanwhile, average petrol prices were unchanged between March and April this year, in contrast to a fall of 2.1 pence per litre between the same two months of 2013.

Howard Archer, chief UK economist at consultancy IHS Global Insight, said: "Not too much should be read into April's first rise in (annual) consumer price inflation since June 2013.

"The rise back up to 1.8% in April, after a dip to a 53-month low of 1.6% in March from 1.7% in February, is partly the consequence of the later Easter this year and also due to the fact that petrol prices dipped markedly in April 2013."

He added: "It [is] highly unlikely to mark the start of a significant upward trend in inflation."

Mr Archer also highlighted the fact that annual CPI inflation remained below the 2% target set for the Bank of England by the Treasury.

He believed this would enable the Bank of England to keep UK base rates at their record low of 0.5% "for some time to come, thereby helping to nurture broader-based growth".

And Mr Archer considered the outlook for inflation to be relatively muted.

He said: "While we suspect that March's reading of 1.6% marked the low point for consumer price inflation, it still looks well placed to remain below 2% at least until the end of 2014.

"And this could very possibly be beyond."

Capital Economics has an even more dovish view on CPI inflation.

It believes it should fall as low as 1% by the end of this year.

The organisation also believes that it will remain comfortably below target in 2015.

Contextual targeting label: 
Business

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