|Inflation held steady at 2.8pc for the second month running in March as a rise in the cost of leisure goods such as digital cameras and books was offset by falling tobacco and cigarette prices.
The stable consumer prices index (CPI) was in line with forecasts and put off an anticipated surge in inflation for another month. Most economists believe CPI will top 3pc by the middle of the year, above the Bank of England’s 2pc target, forcing the Governor to explain the overshoot to the Chancellor.
Inflation may have held steady, according to the Office for National Statistics (ONS), but it is still almost double the rate of increase in average earnings – keeping the pressure on household finances.
However, the increase in March was largely in recreational items that are discretionary purchases. Rising prices were most marked in photographic equipment such as digital cameras, which might reflect the demise of high street retailer Jessops, DVDs, and books, where prices rose between February and March compared with falls last year.
By contrast, inflation on essentials was fairly benign. Petrol prices increased by 2.2p per litre between February and March, compared with 3.3pc last year – easing transport inflation. Overall transport prices rose 0.6pc between the two months, while food prices were lower than expected.
CPIH, an alternative measure of CPI inflation that includes housing costs, was also steady at 2.6pc – the lower rate reflecting small rises in rents and mortgages. On the CPI measure, alcohol and tobacco prices fell 0.5pc. Furniture prices were also weak. The retail prices index, which has historically been used in wage negotiations, climbed from 3.2pc to 3.3pc.
Inflation has been “particularly stable” for the past six months, the ONS said. Since February it has been 2.8pc, having been stuck at 2.7pc for the previous four. However, it is expected to start climbing shortly.
“More inflation misery is coming for consumers,” Rob Wood, chief UK economist at Berenberg Bank, said. “It is likely to rise further in the coming months, partly as the impact of lower sterling comes through. There is ample precedent from the past few years for what prices rising faster than wages means for retailers. Consumption is facing a year of stagnation in 2013.”
Core inflation, which strips out volatile energy and food costs, edged up from 2.3pc to 2.4pc – partly as a result of regulated prices for utilities, which Mr Wood described as “basically tax rises masquerading as price rises”.
Recent sharp falls in the oil price could help temper warnings of imminent inflation, though. Alan Clarke, UK economist at Scotiabank, said: “The recent drop in oil prices should exert some downward pressure on petrol prices from next month.
“The price of oil, adjusted for the pound/dollar exchange rate, is at the lowest level since the end of last year. At that point the price of a litre of petrol was 131p. We are currently at just above 137p. If the price of petrol were to fall back down to that level it should subtract around 0.16 percentage points from headline inflation.”
A Treasury spokesman said: “Inflation is in line with market expectations and down by almost a half from its peak of 5.2pc. The Government has taken continued action to help households with the cost of living, including increasing the tax-free personal allowance and freezing fuel duty for nearly three and a half years. Nine out of 10 working households will be almost £300 a year better off on average as a result of the tax and benefit changes taking effect this month.”