UK headline inflation jumped a close to a full percentage point from March to April, landing at 3.5%. Much of that can be attributed to plane ticket prices, which jumped 28% just during the month. This sharp spike was the biggest factor pushing the total increase. The experts told Insider not to panic over the price surge inflation driving air travel and Easter festivities. They want consumers to read between the lines before making any rash assumptions.
And now plane ticket prices are getting a burst from all the Easter celebrations. These seasonal factors are sure to disproportionately affect the annual inflation rate over the next year. Once this period passes, these factors will no longer factor into the year-to-year comparison, thus setting the stage for a more positive inflation trajectory. To be fair, last year’s Easter holiday did fall in March last year, which further skewed the year-on-year change for this year too.
Rent remains an important part of the UK’s ongoing inflationary picture. Nationally, it’s adding a complete percentage point to the total services inflation number right now. Projections indicate that this contribution will be reduced by 50% by the beginning of 2024. This decline will go a considerable way to relieve some of the services inflation pressure.
To make matters worse, the timing of this data collection adds an additional layer of complication. They took note of the market prices just before Good Friday. This period usually results in changes to the overall consumer spending due to Easter. This timing is unconventional and makes the task of unpacking the current inflation dynamics that much more difficult.
According to the most recent analyses, major sectors like transportation, groceries, and utilities have all recently reported drops in their yearly inflation rates. This extends to restaurants, coffee shops, delivery services, and medical care. This trend is a positive sign that although some components of inflation are rising sharply, there are areas where inflation is calming—including in the overall inflation rate.
Now, the just released inflation data triggered an apocalyptic pivot on the views on monetary policy. The Bank of England had been thought likely to follow a similar path. With inflation numbers continuing to go in the wrong direction, a rate cut in June seems like less of a sure thing by the day. The new data has sunk expectations for any near-term interest rate reductions. At the very least, it signals that these kinds of reductions won’t be occurring anytime soon.
The higher road tax accounted for nearly half of the court services inflation increase. The remainder is more because of increased airfares and prices of holiday packages. The share from “miscellaneous personal transport” services increased by 0.5 ppts, as a sign of shifting consumer preferences and spending habits.
Looking further out, surveys do suggest that UK services inflation is on a downward trajectory. It is projected to fall from April’s level of 5.4% to around 4.5% in the summer months. This much needed drop could help bring a sigh of relief to consumers increasingly burdened by the cost of living.