Official figures from the Office for National Statistics (ONS) indicate that while the rate of inflation has slightly reduced, it remains above 10%, with food and drink costs at their highest level in 45 years.
In March, the consumer prices index (CPI) fell to 10.1%, a slight improvement from the previous month's 10.4%, but still higher than economists' forecast of 9.8%. While fuel prices have decreased, household gas and electricity and essential food items, such as bread, milk, and eggs, continue to put pressure on the cost of living.
According to the ONS, the inflation rate for food and non-alcoholic drinks has hit 19.1%, the highest since August 1977, mostly due to high commodity and production costs.
Additionally, February's inflation data showed that the salad shortage in supermarkets also contributed to the increase. However, the upcoming UK growing season is expected to result in a sharp decline in prices for goods like tomatoes and cucumbers.
Grant Fitzner, the ONS Chief Economist, commented:
"The main drivers of the decline were motor fuel prices and heating oil costs, both of which fell after sharp rises at the same time last year.
Clothing, furniture and household goods prices increased, but more slowly than a year ago.
However, these were partially offset by the cost of food, which is still climbing steeply, with bread and cereal price inflation at a record high.
The overall costs facing business have been largely stable since last summer, although prices remain high."
On top of that, the release of the latest figures comes amid hopes that a slowdown in inflation would allow the Bank of England to pause its efforts to control inflation by raising interest rates.
Since December 2021, the Bank has increased rates at 11 consecutive meetings to curb price pressures in the economy.
Although policymakers cannot address factors like energy, which is the primary driver of the inflation crisis, the Bank can reduce demand in the economy by raising borrowing costs.
The Bank may have been encouraged by the decline in the headline inflation rate. However, a separate measure closely monitored by the Bank, which excludes volatile price components (known as core inflation), remained unchanged at 6.2%.
Meanwhile, the employment data released on Tuesday revealed that wages continued to increase, although they still lagged behind CPI levels.
The Bank has expressed concerns that wage increases aimed at offsetting the impact of inflation on household budgets, particularly in light of the winter strikes that affected several sectors, could fuel inflation further.
Furthermore, financial market data indicated that the probability of a 0.25 percentage point increase in Bank Rate at the upcoming meeting, scheduled for next month, had climbed from 80% to 95%.
Susannah Streeter, Head of Money and Markets at Hargreaves Lansdown, said:
"The heat has been turned down on the bubbling cauldron of prices, but inflation is still scalding and interest rates look set to be pushed up again to try and cool it down rapidly.
Instead of retreating below double digits, CPI is staying stubbornly high, causing more pain for companies and consumers."
Chancellor Jeremy Hunt commented:
"These figures reaffirm exactly why we must continue with our efforts to drive down inflation so we can ease pressure on families and businesses.
We are on track to do this - with the OBR (Office for Budget Responsibility) forecasting we will halve inflation this year - and we'll continue supporting people with cost-of-living support worth an average of £3,300 per household over this year and last, funded through windfall taxes on energy profits."
UKHospitality Chief Executive Kate Nicholls also responded to ONS inflation data:
"It’s becoming increasingly concerning that we’re not seeing inflation decrease as quickly as many hoped, particularly when business costs are experiencing inflation far higher than the 10.1% released by the Office for National Statistics today.
We saw just last week that food service price inflation remains over 20% and new research shows that the price pubs paid for food rose three times quicker than their menu prices.
Hospitality businesses are doing all they can to shield consumers from price rises, which means they’ve absorbed as much cost as they can, but that is becoming unsustainable for many.
Our sector can help the Government achieve its aims of halving inflation, if it is given a helping hand by the Government to ease recruitment challenges and energy suppliers are reigned in so energy costs are able to fall. I would strongly urge it to do so and harness the power of hospitality to create employment and economic growth, and reduce inflation."
However, it's also now been reported that inflation is expected to drop back below 10% for the first time since last August, according to a consensus of economists.
Economists at Investec reported:
“Following the significant upside surprise in the February numbers, we expect a clear easing back to have taken place in March.”
They said a drop would be largely driven by lower petrol prices as demand continues to recover globally. Investec added that “supply chain disruptions and lower shipping costs” could also result in falling goods prices for the month.