LONDON: Inflation hit the highest level in four years during April, beating forecasts and likely ending a two-year period of real wage growth, according to the latest inflation figures from the Office for National Statistics. Prices were 2.7 per cent higher than in the same month a year ago, up from 2.3 per cent during March. The latest labour market data showed that wages grew 2.3 per cent in the three months to February.
The jump in inflation was mainly driven by air fares — they increase during the Easter holidays, which this year fell in April rather than March. Analysts had expected inflation to increase to 2.6 per cent. The news caused the pound to fall 0.54 per cent against the dollar from a value of $1.295. UK government bond prices fell, pushing the yield on 10-year gilts up by 2 basis points to 1.16 per cent.
The retail price index, which is no longer used as an official measure of inflation but is used for some inflation-linked bonds, increased to 3.5 per cent in April from 3.1 per cent the previous month. Stagnant living standards have been the post-financial crisis norm in the UK, except for a brief period when falling oil prices helped to lift incomes in real terms. The latest data suggest that this growth is now over. It underlines the challenge facing the Bank of England, which must decide how to respond to simultaneously rising inflation and falling incomes. The rate of inflation is now above their 2.65 per cent forecast for the entirety of the second quarter of 2017.
