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This is the first time that inflation falls since September and economists were expecting it to remain unchanged. Inflation has remained below 1% since December 2014, providing respite for UK households as prices rise at a slower rate than wages. Regular pays, in fact, which had been falling for six years during the financial crisis, grew 2.2% without bonuses (1.8% including bonuses) in the three months to February compared with last year.
The ONS mentioned amongst the main causes of this decline, falls in the prices of air fares, clothing, social housing rents, as well as vehicles. The price of used cars also fell between March and April this year, but rose over the same period in 2015. The largest downward effect came from air transport, with prices falling by 14.2% compared with a rise of 4.5% in same period last year.
Overall, the decline was highly influenced by the earlier timing of Easter in March, which pushed prices up, in particular air fares, before they returned to normal in April.
Moreover, the Bank of England’s Monetary Policy Committee (MPC) voted last week to hold interest rates at their current seven years’ record low of 0.5% and they are not expected to be raised until at least next year.
As recently predicted by the Bank of England, inflation rate will probably experience again a minor increase in the second half of the year, however, the NFDA is pleased to see that this downturn can boost consumers’ confidence to consider large purchases such as a new car.