Inflation-food seesaw

Linda Hall

UK inflation fell last month although the reduction was less than hoped for.

The Office for National Statistics (ONS) revealed that annual inflation as measured by the consumer prices index (CPI) dropped to 8.7 per cent in April, following March’s 10.1 per cent cutback. The rate peaked at 11.1 per cent last October.

Electricity and gas prices contributed approximately 1.4 percentage points to the fall according to the ONS.

This was partly counterbalanced by food prices which continued to rise at their fastest annual rate since 1977, with the increased cost of the weekly shop shooting up by 19 per cent in the year ending in April owing to soaring food and non-alcoholic drink prices.

Economists had predicted a larger drop to 8.2 per cent, while the Bank of England said earlier this month it had expected inflation to fall to 8.4 per cent in April.

These latest ONS statistics were announced as analysts warned that Prime Minister Rishi Sunak’s target of halving the rate of inflation this year would be closer run than was originally envisaged.

The ONS announcement prompted financial markets to forecast it was practically a given the Bank of England would increase the base interest rate by a quarter-point from4.5 per cent when they next meet in June. while weaker-than-forecast GDP added to the downside.

USD faced further losses through the first week of May. Although the Fed raised rates by 25bps, it signalled a potential pause in its hiking cycle.

A souring market mood helped the safe-haven ‘greenback’ recover as the month went on, despite some disappointing US economic data.

Hawkish comments from Federal Reserve policymakers also helped USD continue to claw back its earlier losses.

Looking forward, the Fed’s rate decision in mid-June is the key event. If the bank leaves rates unchanged, USD could slump. Before then, investors will use the latest inflation and jobs data releases to gauge how the Fed might act.

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