Inflation is the most relatable economic metric.
You might tut at sluggish GDP or sigh at labour market data, presuming you notice them at all, but inflation is the number you feel in your pocket.
This month the link could not be plainer. The headline rate of CPI inflation in April jumped 3.5% on the same time a year ago, up almost a percentage point on March, and driven largely by the timing of changes in household bills.
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April is the start of the new financial year, and households do not need the Office for National Statistics (ONS) to tell them that means price rises. Combined gas and electricity prices are up almost 7% and water bills more than 25% on average, and index-linked broadband and mobile phone increases kicked in too.
Add a council tax hike of 5%, not included in the CPI calculation, and Sky News analysis suggests an average annual increase of almost £500 for every household, inescapable for billpayers and awkward for a government that came to power promising to put more money in people’s pockets.
That case is harder to make when policy choices are considered inflationary. The ONS pointed to increases in transport costs driven by vehicle excise duty – car tax – for both electric and internal combustion engine vehicles.
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Inflation surges to 3.5% due to April bill shock
April also saw the introduction of increased employer National Insurance payments and a reduced threshold, along with a 6% increase in the minimum wage, welcome for employees but another pressure on business.
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Chancellor Rachel Reeves did not deny that these costs would weigh on employers and could impact prices, but remains steadfast that tax rises were necessary to stabilise the public finances she inherited.
She cited the potential impact of recent deals with the US, India and this week the EU to boost trade.
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The good news is that this may be close to the peak of an inflation surge long anticipated by the Bank of England and, while wages continue to rise faster than prices, the rate of increase may be slowing down.
There are also some statistical factors that inflate the April figure a little too, primarily a late Easter (last year it fell in March) which pushed up spending on airfares, recreation and culture.
Having already cut rates twice this year the Bank says it remains committed to a “gradual” path for further reductions.
