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CPI inflation hit 7.0% in March - and higher inflation to come

Date: 19th April 2022

In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the latest UK developments:
  • The Consumer Prices Index (CPI) YOY rate rose to 7.0% in March, up from February’s 6.2%, effectively the highest rate since March 1992. The YOY rate for motor fuels and lubricants was 30.7%, household electricity and gas prices were 24.8% higher (YOY), whilst the prices for second-hand cars were 31.0% higher (YOY).
  • Both the output and input producer prices inflation rates picked up in March, indicating further inflationary pressures in the pipeline.
  • The latest data suggest that the labour market is continuing to recover, but the recovery appears to be slowing.
  • In the three months to February 2022, LFS estimates showed a decrease in the unemployment rate to 3.8%, but the employment rate was largely unchanged, and the economic inactivity rate increased.
  • The number of payroll employees increased by 35,000 (MOM) to a record 29.6mn in March, but the monthly increase showed a marked slowdown and February’s increase was revised sharply down to 174,000 (MOM) from 275,000 (MOM).
  • UK vacancies in the three months to March rose to a new record high of 1,288k, an increase of 50,200 (QOQ).
  • Annual growth in average total pay (including bonuses) was 5.4% and in average regular pay (excluding bonuses) was 4.0% among employees for the three months to February 2022. In real terms (inflation adjusted) total pay rose by 0.4%, but regular pay fell by 1.0%.
  • According to official data, UK average house prices rose by 10.9% (YOY) in February, up on January’s 10.2%. London continued to be the region with the lowest annual growth.
  • The Nationwide reported that house prices rose by a buoyant 1.1% (MOM) in March, to be 14.3% higher YOY, the strongest pace since November 2004.
  • The Halifax reported prices rose by 1.4% (MOM) in March, whilst the YOY increase was slightly down at 11.0%, after February’s 11.2%.
  • GDP rose just 0.1% (MOM) in February, after January’s 0.8% increase, but it was 1.5% higher than its pre-pandemic February 2020 level.
  • Services grew 0.2% (MOM) in February, with growth dampened by a fall in human health activities, largely reflecting a fall back from high levels in NHS Test and Trace and vaccination activity in December and January.
  • Output in the production sector decreased by 0.6% (MOM) in February 2022, within which manufacturing output fell by 0.4%. Construction output slipped by 0.1% (MOM).
  • The Markit surveys for March were mixed. Services activity accelerated, whilst construction was unchanged, and manufacturing weakened. Increasing inflationary pressures were a general concern.
  • There was a modest improvement in the trade (goods and services) deficit in February.
Concerning international news:
  • The ECB left policy unchanged at its April meeting. It plans to end APP (Asset Purchase Programme) purchases in 2022Q3 and remains in no hurry to raise rates.
  • Eurostat reported that eurozone CPI inflation had increased to 7.5% (YOY) in March (flash estimate), from 5.9% in February. Within the eurozone, Germany’s inflation rate was 7.6%, Spain’s was 9.8%, France’s was 5.1% and Italy’s was 7.0%.
Ruth Lea said “…the Consumer Prices Index (CPI) YOY rate, at 7.0% in March, was the highest CPI YOY inflation rate in the National Statistics series, which began in January 1997. In addition, it was the highest rate in the historic modelled series since March 1992, when it stood at 7.1%. Inflation is, moreover, expected to pick up further. The MPC warned in March that they expected CPI inflation to increase to around 8% in 2022Q2, the energy price cap was increased substantially in April, and perhaps even higher later this year. They noted that Ofgem’s utility price caps could be increased significantly again when they are reset in October 2022. And the MPC speculated that this could push CPI inflation in late 2022 above the level projected for April, possibly into double-digits”.

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Arbuthnot Banking Group PLC: 

Ruth Lea, Economic Adviser 
07800 608 674, 020 8346 3482 
Follow Ruth on Twitter @RuthLeaEcon

Sam Cartwright 
020 7379 4415