UK inflation hits seven-year high

[HenryTo]

From the Guardian. UK inflation numbers are definitely worth keeping an eye on as well.
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UK inflation hits seven-year high

Mark Tran
Tuesday April 19, 2005

Inflation rose to a seven-year high in March, moving ominously closer to the Bank of England's target, official figures showed today.
The Office for National Statistics (ONS) said the consumer prices index (CPI) had risen to 1.9% in March from 1.6% in February, driven by stronger price increases for transport, food, furniture and clothing.

The figures for last month were much stronger than City analysts had expected, and the sharp upward move towards the Bank's 2% target is likely to heighten concerns that it could raise interest rates - which currently stand at 4.75% - over the coming months.

"This is a nasty surprise for the Bank of England that significantly increases the chances of an interest rate hike in May," Howard Archer, the chief UK economist for the consultancy Global Insight, said.
"While much of the increase was due to higher energy and seasonal food prices, there was evidence that retailers were starting to push through stronger prices in other sectors."

Mr Archer also noted the presence of other sources of inflationary pressure, including higher oil prices and a tighter labour market. "Consequently, we expect the Bank to raise interest rates by 25 basis points next month," he added.

The news will not be welcomed by Labour, which has made its handling of the economy a key plank of its election campaign.

Gordon Brown, the chancellor, will be particularly concerned that prices are picking up even though the outlook for the global economy - and particularly the US - is getting weaker.

The ONS said inflation had picked up last March on the back of bigger rises in air fares and petrol prices than a year ago, and noted that the price collection period included the Easter public holidays, which last year were in April.

A further large upward effect came from food, mainly because of price increases for milk and vegetables, where supply shortages of some fresh produce were reported.

However, there was also a large downward effect from those housing costs excluded from the CPI, the government's target measure, leaving the retail price index annual rate unchanged in March at 3.2%.

This was mainly due to mortgage interest payments, which rose by much less than a year ago when lenders passed on the February 2004 increase in base rates.