Consumer prices rose a surprisingly small 0.1 percent on the month in March to reduce the annual inflation rate by 0.2 percentage points to 2.5 percent. This was its second successive decline and, while still above the 2 percent target, the weakest outturn since March 2017.
The fall in the yearly headline rate was largely due to clothing and footwear which saw a 0.7 percent monthly increase in prices versus a 2.0 percent jump in March 2017. Alcohol and tobacco also subtracted as the increase in duty a year ago was not matched last month. In addition, there were smaller negative contributions from miscellaneous goods and services and furniture and household equipment. A partial offset was provided by a monthly rise in the price of recreational goods and cultural services but even this could prove short-lived as an early Easter probably provided for some upside bias.
Consequently, core prices were almost as soft as the headline, recording a 0.2 percent monthly gain which lowered their annual rate by a tick to 2.3 percent, a 12-month low. Meantime, the CPIH, the measure preferred by the ONS edged up 0.1 percent from February to reduce its yearly rate from 2.5 percent to 2.3 percent.
The March inflation report will inevitably dent speculation about another hike in Bank Rate next month. The first quarter outturn (2.7 percent) was comfortably short of the BoE's 2.9 percent projection contained in the February Quarterly Inflation Report which will make justifying any tightening all the more difficult. Certainly the doves are unlikely to be impressed. A split decision now looks more likely than ever and it may well be down to Governor Carney to cast the deciding vote.