If you think that today is tough then I hope you will feel better than the poor research student who has the job of presenting the morning meeting at the Bank of England. He or she will find it impossible to put any sort of a sugar coating on this.
The Consumer Prices Index (CPI) rose by 7.0% in the 12 months to March 2022, up from 6.2% in February.
On a monthly basis, CPI rose by 1.1% in March 2022, compared with a rise of 0.3% in March 2021.
So it has risen at 3 and a half times the target they are supposed to aim at and even the monthly rise is more than half the targeted annual rate. This means that the Governor Andrew Bailey will be thinking of the letter he had to write to the Chancellor on the 17th of March.
If inflation moves away from the target by more than 1 percentage point in either direction, the Governor is required to send an open letter to the Chancellor explaining why inflation has moved away from target and what action the Bank is taking to bring inflation back to target.
There is a flaw in the infrastructure here when a move of 1% is considered such a big deal that an explanatory letter to the Chancellor is required but the gap is in fact now five times larger.
Reminding Governor Bailey of last month’s letter will not help his mood.
UK CPI inflation is expected to rise further to around 6% in February and March, before increasing to around 8% in 2022 Q2. The latter would be around 1 percentage point higher than expected in the February Monetary Policy Report.
I have been kind and only put the latest forecasting error but this has been a tale of woe for the Bank of England’s credibility as it has claimed inflation would be “temporary” when it in fact has been singing along to “the only way is up baby” by Yazz.
Putting it another way it will be hard to claim that a 0.25% increase in interest-rates is especially material when the annual rate of inflation has just risen by another 0.8% or more than treble it.
What has caused this month’s rise?
Firstly we see that the most severe inflation is in the goods sector.
The CPI all goods index annual rate is 9.4%, up from 8.3% last month……The CPI all goods index is 115.6, up from 114.0 in February.
Whereas so far services have been more subdued.
The CPI all services index annual rate is 4.0%, up from 3.5% last month…..The CPI all services index is 118.1, up from 117.3 in February.
As the GDP release on Monday showed that services have been our strongest performing sector I see this as more support for my theme that lower inflation leads to a better economic position. Probably best for our poor research student at the Bank of England to skip that unless they like working in the crypt and having their cake trolley pass suspended.
A driving factor in this month’s rise was this.
Rising prices for motor fuels resulted in the largest upward contribution to the monthly rate in March 2022.
The rise in prices which was mostly caused by the war in Ukraine was around 10% and is the largest I can recall for this category although I need to check what happened in 73/4 when I think we saw rationing.
Average petrol prices rose by 12.6 pence per litre between February and March 2022, the largest monthly rise on record (since 1990)…….Similarly, diesel prices rose by 18.8 pence per litre this year,
I wish they would stop all this since 1990 nonsense as does anybody believe we first measured petrol prices then?
Next on the list came this.
Restaurants and hotels, where prices overall rose by 2.0% between February and March 2022,
There was bad news in the detail for those who like to imbibe an alcoholic drink although care is needed with this series as some of the past numbers were unavailable and hence were imputed. We got some more detail in another section.
The upward effect came from a combination of tobacco (particularly cigarettes) and spirits such as vodka and whisky.
Whilst domestic energy was mostly quite waiting for the price cap rise next month there was quite an eye-watering rise for some.
Housing, water, electricity, gas and other fuels, where the upward contribution of 0.10 percentage points came mostly from liquid fuels, where prices of kerosene for domestic heating rose by 44.0% between February and March 2022, compared with a rise of 2.9% a year ago.
There was also a continuation of a factor we have been following although this time around it does not seem to have been (home) office based as it was lounge and bedroom furniture.
Prices rose by 1.9% on the month in 2022, compared with a smaller rise of 0.8% a year earlier.
Housing
This is a big issue in the inflation debate as there have been official efforts firstly to ignore it ( the CPI measure does not include owner-occupied housing costs in spite of it often being the largest expenditure category) and then to mislead about it like this.
The Consumer Prices Index including owner occupiers’ housing costs (CPIH) rose by 6.2% in the 12 months to March 2022, up from 5.5% in February.
However they have overplayed their hand so much that the number is embarrassing as they end up REDUCING inflation via housing costs. The annual rate is some 0.8% lower via this fantasy imputation.
Private rental prices paid by tenants in the UK rose by 2.4% in the 12 months to March 2022, up from 2.3% in the 12 months to February 2022.
Firstly this bears no relation to what private-sector estimates of rental inflation are.
The average rent in the UK is now at £1,078, up 8.7% on the same time last year, and 0.8% from last month’s figures. ( Homelet)
So there is an issue for those who rent which is some 6.9% of the index but it also assumes that owners pay rent which means that the much lower official rental inflation rate also impacts on another 17.3%. So just under a quarter of this measure is effectively deflated especially if we compare with a price that home owners actually do pay.
UK average house prices increased by 10.9% over the year to February 2022, up from 10.2% in January 2022……The average UK house price was £277,000 in February 2022, which is £27,000 higher than this time last year.
As you can see you get a much lower inflation measure if you put in 2.4% as opposed to 10.9% for 17.3% of your index.
Using house prices would have CPIH at 7.7% which is materially different.
Comment
I have avoided up until now mentioning the inflation measure that I feel is best showing the extent of the cost of living crisis.
The all items RPI annual rate is 9.0%, up from 8.2% last month.
You need not take my word for it as the increasingly desperate attempts to hide the numbers by the Office for National Statistics are a clear enough signal. The previous campaign against it is illustrated by the 3 paragraphs of warnings about it when you do track it down. Yet the officially promoted CPIH is so flawed that it remains widely ignored as no-one with any sense believes it.
All inflation measures have strengths and weaknesses and there has been debate over the formula effect on the RPI. Much of this is in the clothing and footwear sector, But if we take out the “excess inflation” here we only trim the RPI to 8.7% and the fundamental story remains the same as wages we learnt yesterday are rising at 5.4% so real wages are falling by around 3%.
For those on a state pension or on benefits then the issue is even more severe.
All other benefits will also be increased in line with CPI of 3.1%. This includes working-age benefits, benefits to help with additional needs arising from disability, carers’ benefits, pensioner premiums in income-related benefits, Statutory Payments, and Additional State Pension.
This was another decision that will give Chancellor Sunak a hangover.
This legislation temporarily suspended the earnings element of the Triple Lock for one year only, following distortions to the earnings statistics.