Inflation hopes set to be dashed

PetrolRecord petrol costs and higher food bills are set to dash any hopes that inflation figures on Tuesday will show a softening in the cost of living.

The consumer price index (CPI) rate of inflation is forecast to hold at 3.4% in March - its lowest rate since November 2010 but still far below the Bank of England's 2% target.
Inflation has fallen from 5.6% last September due to the waning impact of the VAT hike at the start of 2011, falling energy, food and commodity prices and a number of bill cuts from utility providers in February.

However, oil prices rose in March amid fears over increasing tensions between the West and Iran, with Brent crude in London hitting 128 US dollars a barrel, pushing up petrol pump prices as well as having an impact on food bills.

Petrol broke through the 140p-a-litre barrier for the first time in March, while diesel hit a new record of 146.72p, according to the AA.

Victoria Cadman, economist at Investec, said no change in the rate of inflation would be an "uncomfortable reality" for the Bank of England, which confidently forecast inflation to fall rapidly throughout 2012 and into 2013.

The Bank's policymakers will be less inclined to pump more money into the economy through its quantitative easing programme if inflation continues to remain above target.

The British Retail Consortium's shop price index recorded the sharpest increase in the annual rate of food price inflation since August 2010, after dipping to a 23-month low of 1.2% in February.

Households were squeezed by high prices and sluggish wage growth throughout 2011 and economists warned this pressure could be maintained if oil prices remain elevated.

The retail price index, an alternative measure of inflation, is forecast to dip slightly from 3.7% to 3.6%.

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