UK consumer price inflation fell in April because of Easter timing effects but the trend in both headline and “core” rates remains up.

Easter fell in March this year versus April in 2015. Some prices (e.g. air fares) rise around Easter so this timing difference boosted annual inflation in March this year, with a corresponding undershoot in April. The best guide to the trend is an average of the two months – 0.4% for headline CPI inflation and 1.4% for the “core” rate excluding energy, food, alcohol and tobacco. These numbers compare with lows of -0.1% and 0.8% in September and June 2015 respectively.

In addition to the Easter effect, April inflation was depressed by a fall in social housing rents, which reflects the decision announced in the summer 2015 Budget to reduce such rents by 1% per annum over the next four years. The annual rise in total rents fell from 2.9% in March to 1.9% in April, subtracting 0.1 of a percentage point from headline and core inflation.

The CPI understates current inflation because it omits owner-occupiers’ housing costs. The CPIH index includes such costs measured using the “rental equivalence” approach – they are estimated to have risen by an annual 2.2% in April. Core CPIH inflation averaged 1.5% in March / April – see first chart.


The retail prices index (RPI) uses a different approach to measuring owner-occupiers’ costs, incorporating house prices via a depreciation component. Core RPI inflation (i.e. excluding mortgage interest costs as well as energy, food, alcohol and tobacco) was 3.0% in March / April, up from a low of 2.4% in April 2015 – first chart. The core RPI rate, that is, is above the former (pre-2003) 2.5% target for RPIX inflation.

Labour market data, meanwhile, confirm some moderation of demand for workers in early 2016 but this may reflect the introduction of the national living wage rather than an economic slowdown, whether due to Breferendum uncertainty or other factors. The number of employees has stabilised since end-2015, while the stock of unfilled vacancies has fallen slightly – second chart. A breakdown of vacancies by size of firm, however, shows that most of the decline has occurred in businesses employing fewer than 10 people; vacancies have been stable among employers of 250 plus. This is suggestive of a living wage effect – smaller firms may be less able to absorb higher wage costs, while a generalised economic slowdown would be expected to reduce labour demand across all firm sizes.