MNI DATA IMPACT: UK March Inflation Lower, Data Pre-Lockdown

By Laurie Laird

     LONDON (MNI) - UK inflation receded in March, reflecting early signs of the

coronavirus outbreak, even ahead of the national lockdown that took effect after

the collection of data for the current index readings.

     The following are the main points from the March report on consumer and

producer prices released Wednesday by the Office for National Statistics.

     - CPI retreated to an annual rate of 1.5%, in line with analysts'

expectations, falling below the Bank of England's 2.0% target for the eighth

straight month.

     - Crude oil prices plunged by 29.5% between February and March, the biggest

monthly fall on record, declining by 36.7% over the same period of 2019,

creating a significant drag on headline prices at both consumer and intermediate

level. That unprecedented decline in energy priced pre-dated lockdowns across

much of Europe, but reflect forecasts of a fall in crude demand following the

widespread lockdown in China and other Asian nations.

     - Petrol prices declined by 5.1 pence a litre between February and March,

after rising by 1.2 pence a litre in the same period of 2019, accounting for

0.16 percent of the fall in CPI.

     - Aside from petrol prices, which are compiled throughout the month, prices

for most items in the CPI basket were collected on or around March 17th, a few

days after the UK government advised citizens to remain at home, but nearly a

week ahead of the full lockdown announced on the evening of March 23rd.

     - Nonetheless, clothing retailers reported a change in sales patterns,

imposing a discount on 11.9% of items, up from 9.8% in February. That reverses

the historical pattern; typically discounting tapers off in March as new lines

arrive in stores (discounted items fell to 8.5% of the the total in March of

2019 from 10.7% in February). Clothing and footwear accounted for 0.09

percentage points of the fall in CPI.

     - Core CPI fell to 1.6%, higher than the 1.5% forecast, as airfares added

0.06 points to the change in total CPI.

     - Intermediate prices were heavily affected by the retreat in crude oil

prices. Input PPI declined by 3.6% between February and March and by 2.9% over

March of 2019. Output PPI rose by an annual rate of 0.3%, the smallest increase

since July of 2016.

     - The fall in the sterling effective exchange rate may have magnified the

effect of the oil price decline in PPI, with oil traded in dollars. Sterling

declined by 4.7 between February and March, the biggest fall since October of

2016, falling by 3.8% on an annual basis.

     - Statisticians declined to comment on how changes in price collection due

to the coronavirus could affect April inflation data. The ONS has avoided

sending officers into retail outlets that are trading during the lockdown and

has been relying on online responses, phone calls and the extraction of

equivalent prices from internet sites. The ONS will update further on collection

methods for CPI data in early May.

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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