Surprise Fall in Inflation in March

The steady climb in the prices of goods and services has stopped, at least for the time being. The UK Consumer Prices Index (CPI) annual rate of inflation for the month of March 2011 has fallen to 4%, from 4.4% in February. The drop was largely due to a record monthly fall in the price of food and non-alcoholic drinks, which fell 1.4%, compared with a rise last year.

Retail Prices Index (RPI), which includes mortgage interest payments, has fallen to 5.3% from 5.5% in February. This fall eases pressure on the Bank of England to raise interest rates. According to the figures of the Office for National Statistics (ONS), supermarkets had reduced their prices in March. The British Retail Consortium (BRC) said the increased competition at a time when consumers were spending less meant margins were being squeezed. They also added that around 40% of supermarket sales were now discounted or part of a promotional offer.

Fruit prices had fallen by 4.7%, while the price of bread and cereals dropped by a record 2.6% when compared with March last year. Furthermore, a fall in the price of air flights, games and toys also helped to offset rises in energy costs and cars. However, economic analysts warn that the rate of inflation could begin to speed up again in the coming months.

The Bank of England too expects the inflation rate to pick up during the remainder of this year, potentially rising as high as 5%, before falling back to its target rate of 2% by the end of next year.



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