Inflation expected to jump higher as energy price cap increases
Inflation is expected to have jumped higher in April as a hike in the energy price cap came into effect.
Consensus estimates predict Office for National Statistics (ONS) figures will reveal on Wednesday that the Consumer Prices Index (CPI) rate of inflation was up to 2.2% last month.
Higher fuel and food prices are also expected to have helped push the rate higher than March, when it held steady at 1.9%.
The rise will put the rate slightly above the Bank of England’s 2% inflation target.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the month is likely to mark the peak of this year’s inflation.
“CPI inflation likely will fall in May and average 2% across the remaining months of this year,” he said.
Energy prices are set to be the main upward factor for April’s rate, after sector regulator Ofgem increased its cap on standard variable energy tariffs by 10.3% and its safeguard tariff by 9.3%.
Motor fuel prices have already been recorded as soaring higher last month, adding another uplift.
Food prices are also likely to have increased due to a pick-up in import price inflation over recent months.
The timing of Easter could also contribute to a pick-up in some sectors, especially air fares. Ticket prices are measured based on sample days, which in April typically includes the busy run-up to Easter weekend.
Due to the holiday’s early timing last year, this year’s numbers are likely to show a rebound.
But Mr Tombs said the factors pushing up the latest CPI data would not translate into long-term rises.
“Looking ahead, the headline rate likely will fall back to 2.2% in May, as services inflation mean reverts, and then edge down to the 2% target by August, as the anniversary of rises in electricity and natural gas prices by individual suppliers is reached,” he said.
“Thereafter, it likely will dip below target in October, if the recent falls in wholesale prices for electricity and natural gas are sustained, enabling Ofgem to lower its price cap.”
But the rise in the headline rate could prove to be a bolster for the pound this week.
Alessandro Capuano, head of brokerage and business development at FinecoBank, said: “Even though the impact of a rise is likely to be minimal as wages are set to keep on rising, this could have a positive effect on sterling following the worst week in six months on the back of even more failed Brexit negotiations.
“Higher inflation would potentially put an interest rate hike – which had been almost completely ruled out earlier this year – back on the table, possibly strengthening sterling.”