CPI Inflation data: “This latest inflation data is a hugely worrying statistic” – the industry reacts

by | Apr 19, 2023

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The latest ONS March inflation data published this morning has revealed that, for the second month in a row, the CPI inflation numbers have come in worse than economists expectations. They’d predicted the rate to fall below 10%. However, the figure for March remained in double digits, with prices rising by10.1% over the previous twelve months – largely driven by eye-wateringly high food costs.

Finance and investment experts, economists, brokers and financial advisers have all been sharing their reactions to the latest news with IFA Magazine:

Ian Hepworth, director of Croydon-based Funding Solutions UK“This latest inflation data is a hugely worrying statistic. March 2022 was the first full month after the invasion of Ukraine and prices spiked. Given that we are still seeing inflation at over 10% against these already inflated prices, the Monetary Policy Committee and the government are now likely to be very concerned. Further rate rises will now almost certainly be on the cards, putting further pressure on businesses and households.”

Luke Bartholomew, senior economist, abrdn, said:

“With underlying inflation pressures proving more persistent than the Bank of England expected, we now think a further 25bps increase in Bank Rate is likely in May.

 
 

“The May policy decision has always been finely balanced, but the combination of the ambivalent signals from yesterday’s wage data and the strength of inflation today means that the majority of policy makers will probably feel that more tightening is required.

However, inflation is still set to fall rapidly this year. Powerful base effects will almost automatically significantly reduce inflation, while ongoing economic stagnation will also weigh on inflation. As such we think interest rates are unlikely to remain elevated for a sustained period of time.”

Jamie Lennox, director at Norwich-based mortgage broker, Dimora Mortgages: “With inflation remaining in double digits and not slowing anywhere near as fast as forecast, everything is pointing to a further base rate increase in May. Although it is positive that there has been a slight reduction, it will likely be seen by the Bank of England as too soon to take the foot off the gas with base rate increases.”

 

Danni Hewson AJ Bell head of financial analysis said:

“The rate that prices are rising has come down a touch but remains stubbornly high at 10.1%, which raises big questions about how much more work the Bank of England has to do.

“Reacting to today’s figures markets are now pricing in at least two further hikes, taking interest rates up to 4.75%, and are split on whether central bankers will need to go even further after that crucial core inflation number remained stubbornly static.

 
 

“A cooling breeze has wafted through thanks to the fact that fuel prices have fallen back – remember last year prices at the pump hit record highs as motorists were clobbered by a surge in oil costs after Russia’s invasion of Ukraine.

“But it’s the cost of everyday staples that has thrown a major spanner in the works. Bread and cereal prices have reached record levels and although overall food inflation is at a wincingly high 19.1% every household will have their own unique inflation number to contend with.

“The cost of simply living has crept insidiously higher and wage increases are struggling to keep pace with such high inflation, meaning that for many people there’s a growing amount of month left at the end of money.

 

“And what’s really important to note is that although the rate of inflation may drop back dramatically later this year as predicted, that doesn’t mean prices as a whole will start falling.

“But we know some prices are coming down. There is a time lag between those prices coming down and the consumer feeling the benefit, but that time lag can’t be dragged out longer than is strictly necessary.

“UK consumers will be utterly fed up with the situation and they’ll be angry that other parts of the world seem to be benefiting from inflation falling much faster. Warnings that some prices, notably food prices, might not yet have peaked will be beyond frustrating to many people.”

 

Andy Mielczarek, Founder and CEO of SmartSave, a Chetwood Financial company, said: “Although today’s CPI data shows that inflation is easing again, the latest numbers show that savers still need to plan carefully. Elevated prices mean that, without careful financial management, people around the UK are still losing money in real terms.

“Making the most of the right savings instruments is crucial. At the moment, rising interest rates mean that there are opportunities for those who are in a position to put aside a lump sum and allow that pot to grow. For those looking to secure the most competitive rates, looking beyond traditional high street banks is often the key to making better returns, while fixed-term savings accounts can provide savers with lucrative options.”

Nathaniel Casey, Investment Strategist at Evelyn Partners, comments:

 

“Despite March’s data surprising on the upside, inflation momentum remains on a downward trajectory. In monthly terms, headline CPI accelerated by 0.8% in March while the headline annualised rate has decreased slightly due to base effects. Last week the Bank of England’s (BoE) chief economist Huw Pill noted that the path of inflation may be bumpier than expected in the short term but is likely to fall in the second quarter due to strong base effects in the energy sector.

“Looking at the contribution components to inflation, the largest upward influence can be attributed to food and alcoholic beverages with bread and cereals accounting for the largest upward contribution in this category. This subset exhibited its highest annualised inflation rate since the series began in 1989. On the other hand, the largest downward contributions came from transport, particularly motor fuels, with petrol pump prices falling for 4 consecutive months, returning to levels last seen in February 2022.

“The labour market has started to show signs of softening, with the unemployment rate ticking up slightly to 3.8% in February and job vacancies falling for 10 consecutive months. Despite this, vacancies remain 35% higher than their pre-pandemic average and wage growth continues to remain persistent. The latest data shows that the monthly rate of earnings growth reaccelerated from 0.3% in January to 0.6% in February. The risk is that rising wages will feed through to inflation, causing it to become entrenched.

“Although inflation remains elevated it has realigned with its downward trends. Additionally, Inflation should decelerate at a faster rate through the second quarter as large rises in energy prices from last year drop out of the annual comparison. Nonetheless, inflation still has a long way to go to return to the BoE’s mandated target of 2% and wage growth rates are currently higher than would be consistent with this level. As a result, it’s likely that the BoE will continue to hike interest rates, with the futures market currently anticipating a terminal rate of 4.9% in the third quarter.”


Lily Megson, Policy Director at My Pension Expert, said: “Following last month’s shock increase, Britons will welcome the return of slowing inflation. But we are far from the finish line; the threat to people’s finances prevails as inflation remains at eye-watering levels.

“For many, the concept of a financially secure retirement, after years of hard work and diligent saving hangs in the balance. Indeed, My Pension Expert’s latest research revealed that almost half (44%) of over-55s currently in work feel the cost-of-living crisis has rendered retirement entirely impossible.

“People need support, and they need it now. The Government must commit to taking steps to granting all Britons access to the necessary information to help them regain control of their financial futures. Improving access to independent financial advice, for example, would be powerful start. And in doing so, Britons will start to feel more in control of their finances, despite these continuously testing circumstances.”
 

Andrew Gething, managing director of MorganAsh said: “It’s certainly encouraging to see inflation returning to its downward path. However, there may well be some concerns that inflation didn’t drop by as much as economists expected. While the majority were hoping to see the rate of CPI fall to 9.8%, it still remains just above 10%.

“Although it’s progress and the CPIH – which includes owner occupiers’ housing costs, also eased to 8.9%, we still could be some way from people feeling like they have greater control over their household finances. That’s especially true as food costs remain a key contributor to inflation. It will be interesting to see how the Bank of England reacts to this news when the MPC next meets in April, with another rise already priced in by many of the markets.

“The percentages are moving in the right direction, but just not fast enough for the most vulnerable of households. A sustained increase in real world costs and a potential rise in interest rates on the horizon could push more into this vulnerable category, a clear area of focus for firms with Consumer Duty. This expands the scope of vulnerability far beyond financial to include a broad range of issues such as health, lifestyle and relationship vulnerabilities.

“This will be a crucial time for lenders and brokers to ensure all borrowers are getting the advice and support they need. This all starts with monitoring vulnerability consistently.”


 Mohsin Rashid, CEO of ZIPZERO, said: “After last month’s surprise increase, everyone will be breathing a sigh of relief that inflation figures have dropped again.
 
“Yet, these figures can be confusing. We must remember that while the ‘rate’ is falling, inflation is still devastatingly high. Its impact is being felt every day across the country, forcing consumers to make hard choices and ongoing sacrifices.
 
“This is particularly evident with regard to food, which is increasing at a rate well beyond the average. Our research shows that consumers are being savvy, cutting back on meat and exploring frozen alternatives. Yet, savvy can only stretch so far; Britons’ mental and physical well-being is under threat, with many now having to prioritise feeding others over themselves. Food shoppers must be given some financial relief. Supermarkets pursuing endless price increases are heading down a path of mutually-assured destruction.”
 
 

Marcus Brookes, chief investment officer at Quilter Investors:

“Having surprisingly jumped last month, inflation has once again started its slow march down from the double-digit growth we have become accustomed to. However, we are still not below the 10% mark, a level we have not been at since August, what now seems like an age ago. This inflation problem is persisting and the fact is it remains at eye watering levels. With fairly punchy estimates and the government hitching its wagon to halving inflation by the end of the year, it will be hoping it falls at a faster rate than just a few decimal percentage points each month.

“Nevertheless, consumer confidence is beginning to return and the economy may not be as harmed by this cost of living crisis as first feared. For as long as the economy can hold up, the Bank of England will keep the option of interest rate rises firmly on the table. With the headline rate of inflation eventually coming down to hopefully more palatable levels, there will be an increased focus on what is going on under the bonnet with core inflation. This measure failed to shift in March and this will be a real concern to the BoE. Should that fail to fall meaningfully in the next couple of months, then more aggressive monetary policy from the BoE may be required yet again.”


Chieu Cao, CEO of Mintago, said: “It is important we acknowledge that today’s inflation data comes right in the middle of Stress Awareness Month. While prices are falling again, we cannot underestimate the huge impact the cost-of-living crisis is having on people’s financial wellbeing and, in turn, their mental health.
 
“It’s more important than ever that people are given the tools they need to navigate an extremely challenging economic climate. This is best done in the workplace, where not enough support is being provided. Indeed, Mintago’s own survey of over 1,000 UK employees this month has revealed that while 51% of people say their stress has increased notably as a result of the cost-of-living crisis, just 36% benefit from financial wellbeing support through their employer.
 
“By implementing better financial wellbeing support systems for their employees – whether that’s connecting staff with financial advisers, or giving them more control over their pensions – employers could alleviate much of the financial stress that so many people are facing by simply giving them a clearer image of their financial situation. Yes, inflation might be slowing, but today’s data shows there is no room for complacency; UK businesses should act to support staff as a keen priority.”

Hugh Gimber, global market strategist at J.P. Morgan Asset Management said: “Headline inflation in the UK is once again heading in the right direction, yet the Bank of England is still a long way away from being able to feel comfortable that price pressures are under control. Yesterday’s labour market data provided a stark demonstration of how tight jobs markets are fueling strong wage growth. The feedthrough to today’s inflation print was clear, given the strength in wage-sensitive service sectors.  

“Stabilising energy prices will help to bring inflation lower over the second half of the year, but it is increasingly evident that an extended period of below-trend growth will be required to rein in core price pressures. Another 25 basis point rate hike appears highly likely in May, and the Bank must stand ready to take further action unless economic data shows more definitive signs of cooling. Policymakers have come a long way in their fight against inflation. Going forward, the biggest mistake would be to claim victory prematurely.”

Abigail Foster, CEO of financial education platform, Elent“We are now very likely to see another slight increase in interest rates in May. Whilst this could be good news for savers if the high street banks pass this on, it’s another worrying development for people with mortgages. For investors, especially those early on in the investing space, it may start to look more favourable to leave their money in safer savings accounts with more and more banks offering upwards of 3.5% interest. Bonds are becoming far less appealing.”

Rohit Kohli, director at Romsey-based mortgage broker, The Mortgage Stop“This latest inflation data puts to bed any predictions of dramatic interest rate reductions in the short term. I think there will be a further rise in rates before the summer, at which point I think they will be held for a few months. It’s not great for the property market, in particular for the buy-to-let sector where stress tests still remain tight. However, with lenders out there wanting to lend and competing for business there are some deals to be had for people who are ready to buy.”

Mark Grant of Gloucester-based business finance broker, The Business Finance Branch: “Macro global events triggered steep rises in inflation via soaring energy and food costs, and as we move beyond 12 months since these took hold we can reasonably expect a significant reduction in the inflation rate, but it’s not happening as quickly as many expected. Inflation has been running at well over 10% year-on-year for a while now and businesses remain under intense pressure. These same pressures are being felt by their suppliers, so continued support in terms of cashflow funding will be necessary to level out the cash that businesses need to pay overheads today versus their income at a later point from customer payments. Businesses that plan for price inflation will stand a better chance of riding out this cycle in our experience.”

Graham Cox, founder of the Bristol-based broker, SelfEmployedMortgageHub.com: “The USA is starting to see sharp falls in inflation, and I expect the UK will follow suit over the next few months, even though again we remain in double digits for now. Unfortunately, the Bank of England has no real choice but to raise the base rate when other central banks are doing likewise. Failing to do so would see sterling plummet against foreign currencies, further fuelling inflation as import prices rise. Hopefully we’re at the tail end of base rate hikes, and we might even see some cuts towards the year’s end.”

Bradley Lay, a business finance adviser at Bradley Lay: “Inflation is proving incredibly stubborn and the anxiety among minimum-wage workers is palpable. A large majority of the UK workforce are struggling to make ends meet and it feels like there is no end in sight. With inflation still in double digits, the pressure on those barely scraping by is becoming unbearable. It’s increasingly clear that the Bank of England’s rate increases are not a solution but a hindrance to the average household’s finances. Will the government take action to support lower earning workers, or will they be left to suffer the consequences of inflation alone? Many people must brace themselves for the harsh reality of life on the minimum wage in the face of continued high inflation.”

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