On the go: UK inflation hit a new high of 7 per cent in March, as the cost of living crisis continues.
The consumer price index rose by 7 per cent in the 12 months to March 2022, up from 6.2 per cent in February, which exceeded the expectations of Reuters’ economists, who had predicted an increase of 6.7 per cent.
The rate was impacted by rising fuel prices, secondhand cars, clothing and footwear, and furniture, according to the Office for National Statistics.
This does not include the hike in energy prices seen earlier in April, with the raising of the energy price cap.
Inflation has now surged ahead of the Bank of England’s 2 per cent target each month since May last year.
In March, the central bank increased interest rates to 0.75 per cent in an attempt to curb rising prices.
Adrian Lowery, personal finance expert at investing platform Bestinvest, said if inflation continues to overshoot expectations, the pressure will only grow on the Bank of England to give more consideration to the medium-term path of inflation, over the possible drags on the real economy caused by higher rates.
He said the danger is that as inflation expectations rise, so do wage demands and bargaining power, and that could entrench what is hoped to be a short to medium-term spike in inflation into a medium to long-term problem.
“While the monetary policy committee has the flexibility to bring inflation gradually back down to target in a year or two’s time — the central projection for 2 per cent forecast to be met by the end of 2023 in the monetary policy committee’s February report — it’s questionable how such projections can be viewed with any confidence given the febrile economic conditions,” Lowery said.
Becky O’Connor, head of pensions and savings at Interactive Investor, said over the next few months evidence of people failing to cope with price rises is likely to emerge.
“This kind of inflation leaves people living on a wing and a prayer,” she said.
“Any efforts people can make to preserve their savings and keep contributing towards their long-term goals will be worth it in the long run.”
This article originally appeared on FTAdviser.com
