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Rising prices for air fares and clothing and footwear boosts overall inflation level.
UK inflation saw a surprise upsurge in the year to March 2016, according to Consumer Price Index (CPI) data released today by the Office for National Statistics (ONS).
The pound sterling (GBP), recently battered by fears surrounding the UK’s Referendum on its EU membership, advanced by 0.5% to $1.4312 – its highest in a little over a week – following the latest inflation data.
“The rise in inflation levels was a boost to the sterling currency exchange rate against major peers like the US dollar,” said Carl Hasty, Director of international payments experts Smart Currency Business. “However, other economic and political factors, like the EU Referendum vote and the continuing rise of global economic risk, will continue to exert pressure on sterling in a volatile market.”
The rise in inflation is attributed mainly to increases in price levels of air fares and clothing. Spurred on by the timing of Easter this year, air fares rose by a staggering 22.9% from February 2016 to March 2016, compared to 2.7% in the same period in 2015. This was followed by clothing and footwear prices, which rose by a comparatively modest 1.0% between February 2016 and March 2016. This showed an improvement from the same period last year, when prices for this category fell by 0.1%.
However, the boost to inflation levels afforded by air fares and clothing was partially offset by a 0.6% drop in food and non-alcoholic beverage prices between February 2016 and March 2016. This was a larger fall than the 0.2% drop in the same period in 2015.
The latest inflation figure is a long way off from the central bank’s target of 2%, reflecting low levels of inflation within the UK economy. However, it beat expectations of 0.3%, which helped to boost pound sterling.
“The current inflationary pressures still do not justify any change in the MPC’s policy stance on interest rates,” said David Kern, Chief Economist at the British Chambers of Commerce (BCC).
