The pound has recovered some of its earlier losses, following the release of the UK Consumer Prices Index. Rising in line with market expectations, inflation increased 0.6% month-on-month in April, as the rise in the prices of petrol, gas and electricity pushed the cost of living higher.  

The Office for National Statistics released on Wednesday figures that showed the Consumer Prices Index (CPI) rose by 1.5% in the 12 months to April 2021, making it the highest reading since last March.

The rise in inflation was driven by rising household utility bills, higher motor fuel prices and clothing. The ONS said: “Price movements for household utilities, clothing, and motor fuels are the main reasons for the higher monthly rate this year than a year ago.”

Food prices also rose in April driven by increased prices for chocolate, ice cream, breads and cereals. The ONS noted that: “Food prices rose by 0.9% between March and April 2021 but were little changed between the same two months in 2020. Prices for a variety of bread and cereal items rose this year but fell a year ago, resulting in an upward contribution of 0.04 percentage points. There was a similar upward contribution from across a range of sugar, jam, syrups, chocolate and confectionery items, with standout movements coming from large bars of chocolate and chocolate covered ice-cream bars. Prices for these items rose between March and April 2021 but were being discounted between the same two months in 2020.”

The Bank of England’s target is for inflation is 2% in the medium term, and analysts expect inflation to continue to rise in the next few months, as the economy improves and recovers from the pandemic. A stronger pound will help inflation as the cost of imports will fall.

Will rise in inflation be short-lived?

Ruth Gregory, senior UK economist at Capital Economics, believes that April’s rise in inflation will be short-lived: “There were pockets of inflation in those sectors that are reopening, with clothing inflation bouncing back from -3.5% to +0.5%, as retailers continued to reverse the aggressive discounting during lockdowns, and furniture inflation rising from 4.5% to 5.8%.… But in April, these movements were partially offset by some of the pandemic-induced surges in inflation continuing to fade. Data processing equipment fell further from 5.9% in March to 0.2%. Meanwhile, second-hand car inflation dropped from 1.2% to 0.2%.”

Factory gate inflation rose by 3.9%

The rise in commodity prices, drove UK manufacturers to increase their prices in April. The cost of goods after they leave the factory (factory gate prices) rose 3.9% in the 12 months to April 2021. Producer prices rose 0.4% during the month, something that could eventually affect consumers in the shops. Metal, crude oil and mineral prices also rose affecting manufacturers with higher input prices, which jumped by 9.9% compared to April 2020.

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