The office for National Statistics (ONS) has released its inflation data for April. The Core Price Index has fallen from 1.5% in March to 0.8% in April, which is the lowest number since August 2016 and reflects the economic impact caused by the first month of the coronavirus lockdown.
Interestingly, the price information on 16% of the typical basket of goods that the ONS analyse could not be collected due to difficulties caused by lockdown restrictions, or it is simply not currently available. This includes, for example, what a plumber would charge or what a cinema ticket would cost – activities which are not allowed at present.
For these non-available items, the ONS has substituted-in the average inflation rate of the rest of the basket that can be observed. Given that energy costs and the oil price are significant drivers of inflation, the Ofgem reduction in its default tariff cap and the global slump in oil have resulted in a compounded downward effect on inflation.
Inflation should trough around August, with some analysts believing that we are heading towards a zero rate. But is this likely to bounce back later in the year? I think that the key influencing factor to watch, as mentioned previously, will undoubtedly be the oil price.
Yet, if we are at a stage where the ONS has full data on the inflation basket we will also have exited the lock-down as we know it now. Businesses will have clearer information to set their prices and it will be intriguing to see the resultant variations we get on inflation rates.
It is not outwith the realms of possibility that prices will continue to fall across the board. Yes, there will be stock to be shifted and clothing retailers in particular could be inclined to offer discounted sales. However, where there are supply issues in meeting the demand of consumers as they come out of lockdown, the consequence may be some upward pressure on the price to be paid. It is this nuance which may not be immediately picked up amongst the predictable clamour to prematurely proclaim the end of inflation.