Millions of Britons who have been hard hit by the cost of living crisis may finally see some relief, as economists predict that the rate of Consumer Prices Index (CPI) inflation will fall to 9.8% last
month. This would be the first time since August that inflation has fallen back below 10%. The shocking increase to 10.4% in February was due to soaring food prices, with vegetable shortages pushing food and non-alcohol prices up 18% year-on-year – the sharpest increase in over 45 years. While households are still expected to face financial pressures in the coming months, the government and Bank of England policymakers will be keen to see a return to the expected pattern of cooling prices.
Economists at Investec commented that following the significant upside surprise in February, they expect a clear easing back to have taken place in March, largely driven by lower petrol prices as demand continues to recover globally. The new data will compare with March 2022 where prices shot higher following Russia's invasion of Ukraine. Investec also added that "supply chain disruptions and lower shipping costs" could also result in falling goods prices for the month. Deutsche Bank senior economist Sanjay Raja added that a "reversal of very strong clothing inflation" could also help broader inflation drop again.
A notable drop in inflation could also help mortgage borrowers, as it would increase the chance that the Bank of England will pause interest rate hikes soon. The rise in the base rate has driven up mortgage rates, leading those who need to remortgage to face bills that are potentially hundreds of pounds a month higher. At the Bank's previous meeting last month, it said there were signs that inflation was peaking. Despite this, interest rates were lifted by 0.25 percentage points to a 14-year high of 4.25%. There are expectations that the Bank's Monetary Policy Committee will raise interest rates one more time to a peak of 4.5%.
The inflation update comes a day after the Office for National Statistics (ONS) revealed that regular pay, excluding bonuses, rose by 6.6% over the three months to February but was down 3.4% once CPI was taken into account. With inflation expected to fall, this could help to ease the financial burden on households and enable them to make up some of the ground they have lost during the cost of living crisis. Photo by Whittle100, Wikimedia commons.