Rise in inflation ‘no cause for concern’

Small businesses and retailers worried about the impact of rising inflation during the past month have been told that the increase is only temporary.

The UK Consumer Prices Index (CPI) annual rate of inflation rose to 4.5% in April, up from 4% in March, which took many analysts by surprise.

However, Andrew Goodwin, senior economic advisor to the Ernst & Young ITEM Club, said that while the figures would no doubt excite the inflation hawks, they were nothing to be too concerned about.

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He said that almost all of the March-April pick-up could be explained by the impact of the timing of Easter on transport costs

“Abstract from this issue and the picture is little changed and there are few implications for policy,” he said. “Recent figures have been very volatile, but just as the weaker March figures were not a sign that inflation had peaked, neither does the stronger April data suggest that inflation is about to surge.”

He added: “That inflation is 4.5% — more than double the target — is still largely a story of VAT and surging commodity prices and there is little in the figures to suggest that there is any pickup in underlying pressures.”

Some inflation experts point to the fact that core inflation is now at a record high of 3.7%, but Goodwin insisted this was a red herring given that the measure includes the impact of the VAT rise and that the April figures were affected by this seasonal rise in air fares.

He said that although Inflation will move higher over the coming months, there is nothing to suggest any increase in underlying pressures.

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