Consumers have been given some unexpected relief after inflation figures for March showed the cost of living rising at a slower rate than workers’ wages.
Lower food prices were offset by higher costs at the pumps, with consumer prices stabilising at a 1.9 per cent rise – the same rate as February – below the Bank of England’s target of 2 per cent.
Food costs fell 0.1 per cent and the prices of games, toys, music downloads and computer games grew at a slower rate than in the previous year.
The average petrol price rose 1.2p per litre to 120.3p, while diesel was up 1.4p per litre to 130.7p.
The figures mean that people’s wages continued to outpace consumer price rises – good news for households and the wider UK economy, which has been driven by consumer spending since the Brexit referendum.
However, analysts have warned that continued pay rises are unsustainable unless economic growth picks up.
Howard Archer, chief economic adviser to economic forecasters the EY Item Club said: “Any help to consumer purchasing power is particularly welcome as the economy is likely to be hampered by prolonged Brexit uncertainties following the flexible extension of the UK’s exit from the EU to 31 October.
“Consumers have generally been the most resilient part of the economy and they have been helped by real earnings growth climbing to 1.6 per cent in the three months to February, which was the best level since mid-2016.”
However, Mr Archer said it was “questionable” whether this improvement in earnings growth can continue and there were signs of a slowdown beginning in February.
Yael Selfin, chief economist at KPMG UK said the figures “will offer some comfort for businesses worried about the extra costs associated with the departure from the EU, as well as the prospects of rising costs of capital”.
Lower than expected inflation will also reduce pressure on the Bank of England to increase interest rates. A rise would help to lower inflation but would mean extra costs for borrowers and could act to slow economic growth.
The consumer price index (CPI), including owner-occupiers’ housing costs (CPIH) – the Office for National Statistics’ preferred measure of inflation – was 1.8 per cent in March, unchanged from February.
The retail price index (RPI), a separate measure of inflation, was unchanged from February at 2.4 per cent.
