Inflation falls despite sugar tax price hikes and higher pump prices

Inflation fell to its lowest level for more than a year in April despite surging fuel costs and record price rises on soft drinks after the sugar tax came into force.

Figures from the Office for National Statistics (ONS) show the Consumer Price Index (CPI) fell to 2.4% last month, down from 2.5% in March.

Economists had been expecting inflation to stay steady at 2.5%.

The Government's sugar tax came into effect on April 6, pushing up soft drink prices, which saw their biggest ever rise for this time of year, up a record 2.8% month-on-month, and 6.2% year-on-year, according to the ONS.

However, many retailers have not passed on the cost of the tax to consumers yet, while some had increased prices in advance.

Mike Hardie, head of inflation at the ONS, said: "Inflation continued to slow in April, with air fares making the biggest downward contribution, due to the timing of Easter. This was partially offset by the rise in petrol prices.

"Soft drink prices saw their biggest ever rise for this time of year, due to the introduction of the sugar tax. However, many retailers still haven't passed the impact of the tax on to shoppers."

Sterling tanked following the news, falling 0.6% against the US dollar to 1.33. Against the euro, the pound was down 0.1% at 1.14.

Petrol prices rose by 1.5p per litre between March and April, while diesel lifted by 1.6p per litre, compared to a 1.8p per litre fall for both a year earlier.

Economists are expecting oil prices to rise further over the summer after Brent crude surged above 80 US dollars per barrel last week.

It is feared this could put the squeeze on households once more, potentially pushing inflation back up.

While this month's falling inflation will ease pressure on the Bank of England to raise rates in the short term, a return to rising prices over the summer could set the stage for a hike in August.

CPIH fell to 2.2% in April 2018, its lowest level since Jan 2017. Mainly driven by air fares, which rose substantially last year due to the timing of Easter

-- ONS (@ONS) May 23, 2018

The Bank held rates at 0.5% in May, backing away from an expected hike after a sharp slowdown in growth at the start of the year.

Air fares were a significant downwards pressure on inflation last month due to the early timing of Easter. Fares fell 7.9% year-on-year and by 0.2% between March and April.

Clothing prices climbed 1.7% year-on-year, with fashion and shoe prices both rising 1.7%.

Households took a hit on their utility bills as electricity, gas and other fuel prices rose 5.7% annually.

A host of energy firms announced price rises recently, which are expected to impact millions of households over the summer.

Food prices rose 2.3% year-on-year, and tobacco prices surged 6.8% while alcohol prices were up 1.4%.

The ONS figures showed the rate of Retail Prices Index (RPI) inflation, a separate measure of inflation, rose to 3.4%, from 3.3% in March.

The Consumer Prices Index including owner-occupiers' housing costs (CPIH) - the ONS' preferred measure of inflation - fell to 2.2% in April, from 2.3% in March. This was the lowest since January last year.

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