The sun may have shone, but April was nicknamed “horrible” for a reason.
Higher energy bills have been followed by the largest increase in water bills for more than 35 years. Add the continuous increases in food and services prices, an increase in air prices, and you get the highest inflation not only in one year – 3.5% in the 12 months to April – but a situation where prices increase more quickly than in France or Germany.
The good news is that, for more workers, salary increases always exceed the rate at which prices are increasing. This means that their money, overall, extends further. In addition, inflation remains much lower than it was – this 11% peak at the end of 2022 – and should stay like this.
But the rise today is not about to be immediately reversed either.
The increase in gas and electricity bills was propelled by higher world costs – the same factors that triggered the cost of living crisis a few years ago. These large drops down. But, because of how our invoices are fixed, it will take some time for it to mean lower prices for customers.
As for the inflation of services, part of the reason for which it increased in April was an increase in air tariffs due to late Easter holidays this year. Which has distorted the numbers and will be reversed. And the increase in vehicle excise duties was also unique.
But pressures on prices in other services – such as restaurant meals – remain higher than the Bank of England would like to see. And some economists fear that increases in this type of domains suggest that the bosses are transmitting national insurance contributions and other increases in wage costs.
This could continue. Government’s own policies are likely to add to inflation.
These are the kinds of factors that encourage economists to think that inflation could increase more in the coming months, although they think that it will remain less than 4%. And will not fall back before 3% before next year.
This is why some do not expect the Bank of England to reduce interest rates more than once again this year – which could be a disappointment for the hundreds of thousands of owners who are looking to have a tug over the next year.
But there are also certain factors that could help reduce inflation.
The trade war of US President Donald Trump has led to lower global growth expectations and has therefore lowered the price of oil and many other products on the world markets. This should lead to petrol – and help reduce the increase in food bills, as is the agreement could conclude with the EU this week. And continuous uncertainty about the president’s ultimate trade policy could still see cheap imports from China imported here.
As always, inflation is an uncertain beast.
As the Chancellor recognizes, he is painful for households – in particular those whose income does not follow.
