Inflation: Shock fall but no let up for savings – 3991

12th April 2011

Pressure eased on the Bank of England for an immediate increase in interest rates following a drop in the Consumer Prices Index

A fall in the cost of food and drink were the main factors behind the fall. The Guardian reported that the news wrong-footed City analysts who had been predicting that inflation in March would edge closer to 5%.

The ONS release showed that inflation as measured by the Retail Prices Index – traditionally used as the benchmark for pay deals – also fell last month, from 5.5% to 5.3%.

Mindful Money's economist blogger Shuan Richards writes about it here.

Vicky Redwood, UK analyst at Capital Economics, told the Guardian that the respite may only be temporary.

Simon Ward, chief economist at Henderson agreed.

He predicts higher undergraduate tuition fees were likely to raise CPI by about 0.6% over the three years from October 2012, implying a boost of 0.2 percentage points to annual CPI inflation.

He says: "The CPI rise may inflate public sector net borrowing by about £2.2 billion by 2015-16, mainly reflecting higher inflation-linked benefits. This would wipe out two-fifths of the gain to the public finances from the increased fees."

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