CPI inflation was expected to fall in April because of lower petrol prices and a favourable Budget base effect but the outturn of 2.4% was below a projection here of 2.6% (also the consensus forecast). The chart shows a revised profile incorporating the modest good news in today’s release. Inflation is projected to rebound to a peak of 3.3% in June before falling back to average 2.8% during the second half of the year.

Suggestions that today’s news marks the start of a new favourable trend are unconvincing:

• Price expectations balances in business and consumer surveys are in the middle of their ranges in recent years, during which inflation has consistently overshot the 2% target.

• Import prices have yet to respond fully to sterling weakness since late 2012.

• Wholesale petrol prices are rising again. The drag effect on annual inflation will reverse even assuming stable pump prices.

• A continued revival in economic momentum during 2013 may encourage more firms to raise prices, given modest spare capacity and below-average margins.

• Stronger monetary growth since late 2011 should begin to exert upward pressure from late 2013, based on Friedman’s average two-year lead from money to prices.

The recent inflation fall, nevertheless, has improved economic prospects for the remainder of the year by giving a further boost to real money supply expansion.

The new CPIH inflation measure incorporating owner-occupiers’ housing costs fell to 2.2% in April. Such costs, however, are supposedly rising at an annual rate of only 1.0%. This is difficult to reconcile with other information: the CPI index of actual rents increased by an annual 2.6% in April, while the deflator for imputed rents in the national accounts climbed 5.7% in the year to the fourth quarter of 2012.