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Inflation holds steady at 2.8% and likely to remain elevated

Inflation holds steady at 2.8% and likely to remain elevated

Latest data from the Office for National Statistics showed annual Consumer Price Index (CPI) inflation held steady at 2.8% in March, the same as in February.

The largest upward pressure on the headline figure came from the prices of recreation and culture activities.

The main downward pressures came from the prices of furniture and furnishings, alcoholic beverages and tobacco and, importantly, transportation. The upward and downward pressures balanced to produce no overall change in the headline index. Following a period of relative volatility, the CPI index has been broadly flat for the past six months.

The prices of recreational and cultural activities rose by 0.5% between February and March 2013, compared to a 0.1% decline over the same period in 2012, putting upward pressure on the headline rate of inflation. The rising prices of digital cameras, books and DVDs bought over the internet contributed were the main factors behind price increases for recreation and culture.

By contrast, slowdowns in the rate of price growth for transport and of alcoholic beverages and tobacco served to stem any increase in the headline rate of inflation.

Transport prices rose by 1.7% over the year to March 2013, lower than the 1.9% growth experienced over the year to February. Petrol prices increased by 2.2p per litre between February and March 2013, compared to a more substantial rise of 3.3p per litre one year earlier. The prices of alcoholic beverages and tobacco rose by 6.4% over the year to March, compared to 7.0% over the year to February.

Daniel Solomon, economist, Centre for Economics and Business Research, said: & quot;Despite recent declines in the price of a barrel of Brent Crude, several factors are expected to keep inflation elevated at around the 3.0% mark until late in the year.

& quot;The pound has depreciated against the dollar and other major currencies since the start of 2013, pushing up the price of energy imports in pound terms. On 1 January 2013, a pound could buy 1.62 USD; on 1 April it could purchase only 1.52 USD.

& quot;This sterling depreciation has the potential to put upward pressure on the rate of domestic energy inflation and transport costs throughout this year. Counteracting these pressures, domestic and developed world economic weakness will act as a break on inflation over the near term. Overall, we expect the upward and downward price pressures to remain broadly balanced for much of 2013, keeping inflation stable but well above target. & quot;

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George Bailey


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