LONDON: The WPI-based inflation, based on the new series, slipped to a four-month low of 3.85 per cent in April as both food articles and manufactured items eased. The findings echo official figures from the Office for National Statistics today that showed average earnings increased by 2.4 per cent in the year to March, below inflation which is running at 2.7 per cent. Despite the rise in inflation, however, the economy is far from overheating, and all but one of the BoE’s eight policymakers voted last week to keep interest rates on hold. But adjusted for inflation, regular wages in the first quarter fell by 0.2%, the first decline in real wages since 2014. “Our central expectation is that we do expect wages to pick up and real income growth to turn positive over the course of the next few years and that is during the period of leaving the European Union”, said Bank of England Governor Mark Carney.
In the short term, the sluggish wage growth add to fears that weaker consumer spending will see economic growth slow in coming months, given that inflation picked up to 2.7% in April and so is likely to be exerting a major squeeze on real wages. The Consumer Price Index (CPI) rose by an annualised 4.4 per cent in April compared to 5.1 per cent in March. Last week, Bank of England (BoE) Governor Mark Carney warned 2017 will be challenging for consumers, with inflation now nearly certain to overtake wage growth. The Resolution Foundation think-tank has warned that the new figures indicating a “sharp increase” inflation would lead to Britain’s pay squeeze deepening.
The fall in unemployment takes the jobless rate closer to the 4.5% that the BOE estimates is the level that can be sustained without generating inflation. On a month- on- month basis, the highest rise in prices were dominated by food items including coffee, tea and cocoa, potatoe, yam and tubers, bread and cereals, milk cheese and eggs and meat and fish. However, apparel, vehicle taxes, food prices and the weak Pound also fuelled inflation pressures. The Consumer Price Index including owner occupiers’ housing costs (CPIH) hit its highest level since June 2013 at 2.6% in April, up from 2.3% in March. ‘It could edge back in May, but it is highly unlikely to have peaked yet, ‘ said Howard Archer, chief European and United Kingdom economist at IHS Markit. The Bank of England’s target benchmark for the cost of living, the Consumer Prices Index, rose to 2.7% in April, showing costs rising at their fastest annual pace since September 2013.
