Near-term inflation outlook benign, but RBI expected to hold on for now

Near-term inflation outlook benign, but RBI expected to hold on for now

Inflation was driven higher by the falling value of the pound since the Brexit vote.

The Consumer Price Index (CPI) which measures inflation recorded a 0.02 percent decline in April, the National Bureau of Statistics, NBS, said on Tuesday.

'The upward effect for transport came mainly from air fares, with a rise of 18.6% reflecting the usual pattern of increasing prices around Easter, ' it said.

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

Inflation hit a three-and-a-half-year high last month as the Brexit-hit pound and the timing of the Easter holidays pushed up the cost of living.

Businesses are under similar pressure after more figures showed the cost of raw materials jumping 16.6% on past year thanks to the pound's fall, although, so far, factory gate prices have risen just 3.6%. Dukascopy SA is not responsible for any losses arising from any investment based on any recommendation, forecast or other information herein contained.

Excluding bonuses, earnings rose by 2.1% year-on-year, the weakest increase since July of last year and below expectations for a 2.2% rise in a Reuters poll of economist.

"If the disparity between pay and price growth continues to increase as we predict, household spending is likely to slow further, weakening overall economic activity", Suren Thiru, head of economics at the British Chambers of Commerce was cited as saying by the Guardian.

A separate study by the Chartered Institute of Personnel and Development said employers expected to increase pay by just 1% in the coming year.

The Bank of England forecasts inflation to reach 2.8% later this year, though a number of economists expect it to climb above 3%. This meant that wages adjusted for inflation actually dropped by 0.2 percent in the first three months, the first fall since the third quarter of 2014.

"However, the corresponding rural index also increased from 16.05 per cent in March to 16.69 per cent in the month".

Education, recreation and entertainment costs rose 4 per cent from a year earlier, while the health and personal care sector saw price increases of 3.2 per cent. The latest figures on earnings growth are due out later this week.

In particular, wage growth has been notably weaker than expected. The jump accelerated following the Bank of England's decision to cut interest rates in August.

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