CPI inflation increased to 4.5% y/y in April, significantly above expectations (consensus 4.1%, BarCap 4.2%, last 4.0%). Core inflation was 3.7%, above consensus expectations of an unchanged 3.2%. However, RPI inflation was in line with expectations, falling to 5.2% from 5.3% (BarCap 5.3%).
The major surprise in the CPI numbers came from air transport, where prices increased by 29.0% m/m. As a result, travel services as a whole showed m/m inflation of 5.2%, compared to our forecast of 0.5%, contributing an additional 0.3pp to m/m inflation overall. Air fares are one of the most volatile components of the CPI (despite being included in the core measure), and the higher-than-expected increase in prices is likely to have been driven largely by the impact of the timing of Easter. The other area where prices increased significantly was alcoholic beverages and tobacco, where duty increases announced at the budget pushed prices up by 5.3% m/m. However, this was in line with our forecast.
We will publish an updated inflation forecast shortly. Our initial impression is that the upside surprise in today’s numbers is likely to be largely unwound in May, and as a result we would not anticipate significant changes to our forecast.
Chris Crowe, BARCLAYS CAPITAL – Foreign Exchange Research