UK inflation has fallen to its lowest rate in a year, though food price inflation edged back up to 3.1%, according to the Office of National Statistics.

The consumer price index (CPI) fell to 2.5% in March 2018, down from 2.7% in February 2018.

The fall in overall inflation was beyond City expectations, but inflation in the food and drink sector remained higher, at 3.1%, showing a 0.1% increase on February’s rate. Food price inflation had been as high as 4.2% as recently as November.

Analysts said that recent increases in food inflation has wiped out the price drops that resulted from the supermarket price war, amid the increasing market share of value retailers such as Aldi.

James Brown, partner and head of the UK Consumer & Retail practice at Simon-Kucher & Partners, commented: “We’ve seen recent increases in food inflation wipe out most of the price drops driven by the supermarket price war.

“This price war previously contributed to lower levels of inflation and provided a boost to household spending power at a time of pay stagnation and rising prices elsewhere. Most of these gains for households have now been reversed by the return of food inflation.”

Brown added that grocery products are expected to continue rising, but at a slower rate than in recent months.

He said: “We expect to see grocery prices continue to rise, albeit at a lower rate than recently, as it is clear that not all the cost increases from the 2016 fall in Sterling have been passed through yet.

“These price increases, which will be a key contributor to grocery price inflation in the coming months, are not just coming in the form of increases in prices but also ‘shrinkflation’ and fewer promotions. For shoppers this means that the cost of their weekly shop will keep on rising.”

Year of year inflation for alcoholic drinks and tobacco fell significantly from 5.7% in February, to 3.4% for March 2018 compared to the same month last year. No spring budget meant that there was increase in alcohol and tobacco duty as has previously taken place in March.

The price of other products including women’s clothing also rose by less than usual, keeping inflation down.

The fall in overall inflation has raised questions over whether the Bank of England will move ahead with a widely expected increase of interest rates in May.

 

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