Rocketing air fares bump up UK inflation

Further fodder for those bugged by the ramp-up in air fares over public holidays and school holidays: a huge rise in air fares was a key factor behind the broader rise in UK inflation in March.

Easter was early this year, falling in late March. In 2015, it fell in early April, and in 2014, late April.

True to form, air fares jumped by a hefty 22.9 per cent on the month in March this year, the Office for National Statistics pointed out in its breakdown of the inflation reading. (For comparisons, the table from the ONS is below.)

Samuel Tombs at Pantheon Macroeconomics writes:

Inflation pressures are continuing to build, challenging the consensus view in the markets that the MPC will leave interest rates on hold until the end of the decade. The rise in the headline rate entirely reflected an increase in core inflation to 1.5%, from 1.2% in February. About half this increase came from airfares, the rest from stronger inflation in the clothing and restaurant sectors. Airfares were reportedly boosted by Easter in late March, but we have our doubts that all of their rise is temporary.

And Howard Archer at IHS:

We expect consumer price inflation will trend gradually higher during the second half of the year and that there will also be a gradual pick-up in earnings growth due to the tightness of the labour market and April’s introduction of the National Living Wage

However, we do not see the Bank of England raising interest rates from 0.50% to 0.75% until May 2017.

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