Published: Fri, May 19, 2017
Business | By Max Garcia

'Easter effect' powers big jump in inflation to 2.7%

'Easter effect' powers big jump in inflation to 2.7%

Capital Economics UK economist Paul Hollingsworth says while modest nominal wage growth may not be enough to keep up with inflation this year, which he expects to peak just over 3 per cent, next year is a different story.

The latest inflation figures were boosted most of all by rising airfares during the Easter holidays, which were in March past year.

Prime Minister Theresa May is widely expected to defeat the opposition Labour Party which is calling for an end to strict limits on public sector pay growth and higher minimum wage.

"However, it remains probable that the current period of above target inflation is transitory in nature, with little evidence that higher price growth is becoming entrenched in higher pay growth".

Retail inflation based on consumer price index (CPI) dropped to 2.99% in April over past year, mainly due to lower cost of food items, including pulses and vegetables. This was above consensus expectations of an increase to 2.6% and the highest annual CPI inflation reading since June 2013.

Economists polled by Reuters had expected the rate to remain at 4.7%.

The ONS said higher air fares and rising prices for clothing, vehicle excise duty and electricity also played a part in rising inflation.

The downward pressure on the cost of living came from fuel pump prices, with petrol falling by 1.8p to 117.4p a litre and diesel also dropping by 1.8p to 120.3p.

British employers plan to increase pay at the weakest rate since 2013, a survey showed on Monday, offering poor prospects for British households already strained by higher inflation since last year's Brexit vote.

GDP growth slowed to 0.3 per cent in the first quarter while total hours worked increased by 0.8 per cent.

When adjusted for inflation, however, average weekly earnings fell 0.2% year-on-year when excluding bonuses and climbed 0.1% from a year earlier when bonus are taken into account.

In nominal terms, average weekly earnings rose 2.1% ex-bonuses, which was worse than the 2.2% increase the market expected and the smallest gain since July of a year ago, while the 2.4% gain including bonuses was in line with forecasts.

Input prices, a measure of the costs faced by businesses, grew by 16.6 per cent during the month.

The ONS also found that inner London house prices have fallen sharply in recent months.

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