Inflation set for temporary dip

CoinsStubbornly high inflation is likely to heap more pressure on households on Tuesday despite lower prices at the petrol pumps tempering further price rises.

Consumer Prices Index (CPI) inflation is expected to peak above 3% in the summer after sticking at 2.8% in March, as rising gas and electricity bills continue to squeeze struggling families.
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Economists believe the Office for National Statistics will report a temporary slowdown in inflation to 2.7% or 2.6% in April - still above the Bank of England's 2% target. But inflation will remain well ahead of wage growth, which advanced at just 0.4% in the three months to March.

Forecasters at the Ernst & Young ITEM Club, which uses the Treasury's model of the UK economy for its forecasts, estimate that persistently high inflation has already knocked almost 3% off UK growth in the past three years.
It expects inflationary pressures to peak over the summer and said it is unlikely the CPI measure will dip below 2.5% over the next four years.

Rising food prices, higher utility bills and a near-trebling of university tuition fees continue to spur inflation, although the Bank of England recently lowered its forecasts for inflation on the back of weaker commodity and oil prices.

Shore Capital economist Gerard Lane said inflation looks set to have dropped to 2.6% in April in an "ease of the squeeze" on households.

IHS Global Insight economist Howard Archer, who expects 2.7% inflation in April, said: "Consumer price inflation is expected to have edged down in April helped by lower petrol prices and favourable base effects due to the fact that Easter occurred in March in 2013 but in April in 2012.

"This should have meant that the year-on-year increase in many holidays and flights were lower in April than in March."

In Sir Mervyn King's final inflation report before handing over to new governor Mark Carney in July, the Bank said inflation looks set to peak at about 3.1% in June - down from its previous forecast of a 3.2% summer high.
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