UK CPI Fell To 1.5% New Crown In March, Reshaping Inflation Expectations

According to the 22 data released by the National Bureau of statistics, the consumer price index (CPI) increased by 1.5% in March, down again from 1.7% in the previous month.

The UK's National Bureau of Statistics said that the "blockade" measures to curb the new crown epidemic have restrained the demand for some commodities. The decline in vehicle fuel and clothing prices is the main reason for the low inflation level.

Data released on the same day also showed that the producer price index (PPI) rose 0.3% in March, a slight decrease from 0.5% in the previous month, but the price index of raw materials in the factory fell 2.9%, down sharply from 0.2% in the previous month. Petroleum products are the main factors leading to the drop in factory price index, while crude oil prices have led to a negative growth in raw material prices.

UK inflation enters downstream

According to the analysis, the decline of inflation in Britain in March is only the beginning. There is not enough demand to drive up prices in the future.

Equals Group chief economist Jeremy Thompson Cook (Jeremy Thomson-Cook) said: "the inflation rate in Britain in March is stable at 1.5%, but the overall situation surrounding prices shows that we will not talk about the high inflation rate for a period of time. Although the weak pound does exist to push up inflation, there is no inflation without demand. "

Panmure Gordon's Simon French predicts that CPI in Britain may soon fall below 1%, far below the 2% of the Bank of England's target of 2% per year. But he believes that the actual level of living inflation is higher than official data. Because during the blockade, people will only leave their homes because of buying food and drinks. The price of cheap gasoline and clothing is virtually meaningless.

In April, Andrew Wishart said that the CPI inflation rate would decline further from 1.5% to 0.9% in April, and that inflation in the UK could be as low as 0.5% this summer.

Vist said: "we predict that the low employment rate and the prudent psychology of consumers will continue to curb demand and pressure on prices after the new crown epidemic. Coupled with the decline in energy prices, inflation will probably be 0.5%. in the second half of this year".

New crown outbreak reshaping inflation expectations

The Oxford Institute of economic research, a think-tank in the United Kingdom, predicts that inflation in the UK will fall to 0 in the summer and the average annual inflation rate will be 0.8%. After the recovery of the economy and oil prices, the UK CPI will rise to 2% by the end of 2021.

But the Oxford Institute of economic research also believes that the prospect of the new crown virus epidemic is very uncertain, and that the suppressed demand and some containment measures may continue to push up inflation faster. But structural changes associated with the epidemic may pose long-term pressure on price increases.

Martin Beck, chief economist at the Oxford Institute of economic research, said that the difference between yields on traditional bonds and index linked bonds indicates that since early 2020, inflation expectations for investors have dropped sharply, exceeding the current expectations of Beck. Investors seem to be more worried that the epidemic will lead to inadequate response to policy makers and a long-term blow to demand rather than permanent damage to supply. This constitutes a downside risk to inflation.

Some economists called on the Bank of England and the government to introduce more economic stimulus measures. Melissa Davies, chief economist of Redburn stock economics company, believes that the Bank of England needs to go further: "inflation will be volatile next year, and there will be a negative possibility after a sharp reversal". Melissa Davies

She added: "the economy needs more stimulus measures, the quantitative easing provided by the Bank of England is limited, and the Ministry of finance's loan guarantee scheme has not been fully realized. Even the vacation plan can only slow down and the unemployment rate can not be avoided.