UK March Inflation Accelerates to 3.4%


The U.K.’s inflation rate jumped more than economists forecast in March, breaching the government’s upper limit for the second time this year after energy costs rose within weeks of the election.

Consumer prices climbed 3.4 percent from a year earlier, compared with a 3 percent increase in February.

A weak pound is helping push up the cost of imports as Prime Minister Gordon Brown tries to convince voters ahead of a May 6 election that he is the best choice to help nurture the economic recovery and reduce the budget deficit. The Bank of England has a mandate to target inflation at 2 percent and keep it within 1 percentage point of that goal.

Inflation accelerated due to higher prices for gas, fuel, air transport and food, the statistics office said. Transport costs rose 11.3 percent in March from a year earlier, the most since the series began in 1997. Overall inflation has exceeded the central bank’s 2 percent target for the last four months.

Oil prices have soared 77 percent in that last 12 months and the Automobile Association Ltd. said this month that the price of petrol at filling stations climbed to an average 119.9 pence ($1.84) a liter on April 7. That beat the previous record in July 2008.

Core inflation, which excludes costs of energy, food, alcohol and tobacco, unexpectedly accelerated to 3 percent in March from 2.9 percent in February.

Central bank Governor Mervyn King was forced to write a letter to Chancellor of the Exchequer Alistair Darling in February after inflation accelerated to 3.5 percent. Brown said on April 14 that one of his main responsibilities is to keep inflation and interest rates low.

King didn’t need to write another letter today explaining the deviation of inflation above 3 percent because he only needs to do so at three-month intervals. The governor last wrote one in February, which was the sixth such occasion since the central bank was granted independence in setting interest rates in 1997.

Retail price inflation, a cost of living measure used in wage negotiations, was 4.4 percent in March, the statistics office said. Excluding mortgage payments, the rate was 4.8 percent. Both are at the highest since September 2008.


TradingEconomics.com, Bloomberg
4/20/2010 9:44:39 AM