United Kingdom Inflation

United Kingdom

United Kingdom: Inflation accelerates to a 30-month high in April

May 17, 2011

In April, consumer prices added a substantial 1.0% over the previous month, which came in well above the 0.3% price rise observed in March. The monthly price increase mainly reflected higher transport costs (+0.5% month-on-month) driven by more expensive air fares as well as higher alcohol and tobacco prices (+0.2% mom). As a result, annual inflation jumped from 4.0% in March to 4.5% in April, the fastest annual increase in CPI since October 2008 and above the more moderate increase of 4.1% expected by the market. That said, although inflationary pressures are clearly mounting, the Central Bank is likely to continue to refrain from raising interest rates in order to bring inflation down to its target level of 2.0%. As stated by the Governor of the Bank of England Mervyn King in his letter to the Chancellor of the Exchequer on 16 May: attempting to bring inflation back to the target quickly risks generating undesirable volatility in output and would increase the chances of undershooting the target in the medium term." According to its Inflation Report from May, the Bank of England projects inflation to average 4.7% this year and to moderate to 3.0% in 2012.


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