Instant View: UK inflation holds steady as forecast in March

LONDON (Reuters) - British consumer price inflation held steady in March at its highest level since May last year, in line with economists' expectations, official data showed on Tuesday.

ECONOMISTS' REACTION

ALAN CLARKE, SCOTIABANK

"The releases were fairly uneventful but I was struck by the fact that food inflation was low for the second consecutive month. The harsh winter weather hasn't led to a massive spike in food prices which is reassuring. The biggest thing going forward will be energy prices. Oil is now at its lowest since the end of last year, but it remains to be seen how much of this will get passed on to the consumer."

PETER DIXON, COMMERZBANK

"They weren't very exciting quite frankly. They came in pretty close to expectations. Obviously the numbers remain ahead of the Bank of England's target ... and by the end of the Q2, we could see inflation well above 3 percent.

"Inflation is still an issue but I think because the Bank's attention is increasingly switched to growth, I think they are taking a very relaxed view about it. Unfortunately the downside is, as prices go up it does tend to squeeze real wages."

GEORGE BUCKLEY, DEUTSCHE BANK

"I do think you are going to see some increases in inflation over the course of the next three or four months. I wouldn't be surprised to see inflation heading above 3 percent. The one uncertain factor is here is how much petrol prices fall over the next few months based on the fact that we've seen lower oil prices and that could actually limit the peak in inflation we originally had at 3.4 or 3.5 percent. But I wouldn't be surprised if it is be a bit less than that if indeed petrol prices do edge lower.

In terms of input prices and output prices of the PPI side, I'm not sure there is a vast amount of underlying inflation pressure there."

ROB WOOD, BERENBERG BANK

"Inflation in line with consensus expectations at 2.8 percent. PPI possibly a little bit softer than expected but the trend for inflation is probably up, heading to 3 percent pretty soon.

"The Bank of England seems unlikely to engage in more asset purchases in the next month or two, with inflation threatening to go into letter-writing territory soon."

DAVID TINSLEY, BNP PARIBAS

"It's all very much in line with expectations. If anything, pipeline pressures seemed a little bit softer than might have been expected, but offsetting that, core CPI rose slightly on the month. There's not much news in the big picture of the release but nonetheless inflation remains above target and it's going to take number of years bring it back to target.

"This RPI upturn is very much in line with (the Bank of England's) February inflation report. So when it comes to the May inflation report, I don't think there is reason for the committee to be changing its view on inflation very much. If anything, they might take some downside news from the small appreciation in sterling we've seen since February and indeed the oil price is quite a bit off ..., so perhaps there is a window opening for more QE but we continue to doubt there will be more QE until the new governor (of the Bank of England) comes in in July."

PHILIP SHAW, INVESTEC

"This is about as close to consensus as you're likely to get. Our view remains that CPI will move above 3 percent in the coming months. The big question is whether the MPC will look through this and become more aggressive on QE. We suspect it will."

Source: http://news.yahoo.com/instant-view-uk-inflation-holds-steady-forecast-march-091324544--business.html

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