UK April CPI inflation eases off, RPI inflation softens sharply

The United Kingdom April consumer price index-led inflation eased to 0.3 pct y/y, from 0.5 pct in March, against market expectations of 0.4 pct. The 'core' CPI (excluding energy, food, alcohol and tobacco) also fell back to 1.2 pct y/y from 1.5 pct y/y in March as the spike in airfares related to the timing of Easter unwound.

The fall in April inflation came despite the net positive effect of energy price movements. April saw a 3.4 pct rise in forecourt fuel prices, largely as expected, with the rise exceeding the 1.5 pct increase seen in April 2015 and so pushing up on the annual rate, Lloyds Bank reported.

Further, increase in duties in the Federal Budget also led to rise in inflation. Nonetheless, the biggest driver in April was the reversal of last month’s erratic surge in airfares, accounting for 0.15pp of the dip in headline inflation. The unwinding of the Easter timing effect saw fares fall by 14.2 pct between March and April 2016 while fares rose by 4.5 pct between the same two months in 2015.

"With measures of underlying unit costs softening in the latest data for Q4 despite the backdrop of a tightening labor market and likely to remain subdued in 2016 Q1, the gradient of the inflation uptrend is still likely to remain shallow," Lloyds Bank said in a research note.