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Soaring air fares nudge inflation away from near-zero levels

Prices rose at their swiftest pace since the end of 2014 last month, driven higher by rising air fares and more expensive clothing.

Inflation stood at 0.5pc in the year to March, according to the Office for National Statistics (ONS). The increase was greater than the 0.4pc anticipated by analysts, and compared with a 0.3pc rise in the year to February.

At a 15-month high, inflation nonetheless remains well below the 2pc level targeted by the Bank of England.

The rate is “still relatively low in the historical context”, the ONS remarked, yet “after an unprecedented period of the consumer price index (CPI) being close to zero, inflation has begun to rise again”.

Steepening costs for air travel, rising 23pc last month alone, have helped to lift the inflation measure tracked by the central bank. The ONS said that the timing of Easter was partly responsible for higher fares during March.

The increase in transport costs was “partially offset” by falling fuel prices, as the cost of petrol rose by just 0.9p per litre this year, compared with a much larger increase of 3.8p a litre a year ago.

Ian Stewart, chief economist at Deloitte, said that the Bank of England could take “some comfort” from the fact that inflation was heading towards its 2pc objective.
However, Mr Stewart said that the measure is still “running at a quarter of its target rate, and with economic uncertainty rife, the Bank of England is miles away from raising rates”.

“The Bank of England’s big problem is sustaining growth and getting inflation up,” he added.

Scott Bowman, of Capital Economics, said that March’s inflation figure had been lifted by “erratic components”, referring to higher air fares and clothing costs. “There is a high probability these movements will
reversed in the coming months,” said Mr Bowman.

The closely watched “core” inflation figure – a measure that strips out volatile components such as energy and food
prices – rose from 1.2pc to 1.5pc. Mark Carney, the Bank of England Governor, has said that he would need “core
measures [to be] moving notably towards the target” before voting for interest rates to rise
Elizabeth Martins, an HSBC economist, said that the inflation data gave “plenty for the Bank of England’s monetary policy committee to think about” as the team of policymakers who decide on UK interest rates prepare to meet later this week.

Money managers do not expect the MPC to vote to lift rates from their historically low levels, at 0.5pc, until 2020. However, Ms Martins said that inflation was now “0.6 percentage points off its low and heading higher, by our own and the Bank of England’s forecasts”.