Inflation falls only a little in March; Food prices soar by over 19 per cent

Britain now has western Europe’s highest rate of consumer price inflation after it fell by less than expected in March to 10.1 per cent from February’s 10.4 per cent, official data showed on Wednesday.

Economists polled by Reuters had forecast that the annual CPI rate would drop to 9.8 per cent in March, moving further away from October’s 41-year high of 11.1 per cent but still eating into the spending power of workers whose pay is rising by less.

The Office for National Statistics said the price of food and non-alcoholic drinks rose by 19.1 per cent in annual terms in March – the biggest such increase since August 1977.

Despite falling in March, Britain’s inflation rate was the highest in western Europe and the only country in the region to post a double-digit number for last month, after Austria recorded a higher inflation rate in February.

The data are likely to bolster bets that the Bank of England will again raise interest rates next month after core inflation – which strips out volatile energy and food prices – failed to fall as expected in March and instead held at 6.2 per cent.

“These figures reaffirm exactly why we must continue with our efforts to drive down inflation so we can ease pressure on families and businesses,” Chancellor Jeremy Hunt said.

Last month the BoE said it expected inflation to “fall significantly” in the second quarter. In February, the BoE had forecast March inflation of 9.2 per cent.

“Another 25 basis point rate hike appears highly likely in May, and the Bank must stand ready to take further action unless economic data shows more definitive signs of cooling,” said Hugh Gimber, global market strategist at J.P. Morgan Asset Management.

While inflation is likely to drop naturally as the sharp increases in energy prices seen last year fall out of the annual comparison, the BoE is trying to judge how fast it will decline.

Other indicators have looked mixed on that front, with data on Tuesday showing stronger-than-expected wage growth. Business surveys however show cooling cost and selling price pressure.

Inflation in prices charged by manufacturers fell sharply in March to its lowest since October 2021 at 8.7 per cent, down from 11.9 per cent in February, largely reflecting a drop in oil prices.

Raw material costs for manufacturers were 7.6 per cent higher than a year earlier – down from February’s 12.8 per cent but less of a drop than economists polled by Reuters had been expecting.

Commenting on the figures, the British Independent Retailers Association (BIRA) said soaring prices for food and essential cupboard items such as bread and cereal were of a grave concern to them.

Some of the sharpest rises have been in olive oil which have risen by 49 per cent, milk by 38 per cent and ready meals by 21 per cent.

“The small fall in inflation is a concern, but a bigger worry is the rise in food inflation – now at almost 20 per cent. With so much consumer spending being spent on essentials such as food, there is less disposable income for the discretionary spends that so many smaller retailers rely on,” Andrew Goodacre, BIRA chief executive, said.

“I would like to see some investigation into the food supply chain to ensure that we are not experiencing unnecessary increases, because inflation on non-food items is much lower.

“I also hope the Bank of England does not use these latest figures as a reason to increase interest rates. Interest rates are proving to be a very blunt instrument on inflation because the rise in prices is not driven by consumer demand. Increasing interest rates would further restrict any economic growth and the BoE has to look at other ways of reducing inflationary pressures,” he added.