UK headline CPI inflation rises to 7.0 per cent

UK headline consumer price inflation increased to 7.0 per cent in March 2022, up from 6.2 per cent in February, the National Institute of Economic and Social Research (NIESR) said in its CPI tracker published on 13 April 2022¹. The institute's own measure of underlying inflation, which excludes 5 per cent of the highest and lowest price changes, rose to 5.6 per cent in March from 5.1 per cent in February¹.

Between February and March, the transport and restaurants and hotels sectors contributed almost 0.5 percentage points to the headline figure¹. NIESR said 25.7 per cent of goods and services prices changed in March, with approximately 15,000 items recording price rises, while 3.8 per cent of prices were reduced due to sales and 4.2 per cent fell for other reasons¹.

Underlying inflation increased in all 12 UK regions in March¹. London's underlying annual inflation rate remained the highest at 6.4 per cent, compared with Wales, which again had the lowest rate at 4.9 per cent¹.

Measure	February 2022	March 2022
Headline consumer price inflation	6.2%	7.0%
NIESR underlying inflation	5.1%	5.6%
London underlying annual rate	not reported	6.4%
Wales underlying annual rate	not reported	4.9%

NIESR said the Russia-Ukraine war continues to affect price inflation, and that its forecast "paints a dire picture for consumers, as declining real wages and increased payroll taxes erode household finances"¹. It forecasts annual consumer price inflation will peak in the third quarter of 2022 above 8 per cent, as the direct impact of the war in Ukraine and second-round effects feed through to consumer prices¹. Inflation is forecast to average 7 per cent this year and will likely remain above target until 2024¹.

"Annual headline CPI inflation increased to 7.0 per cent in March from 6.2 per cent in February. Our measure of underlying inflation, which excludes extreme price movements, increased to 5.6 per cent in March from 5.1 per cent in February. NIESR forecasts annual consumer price inflation will peak in 2022 Q3 above 8 per cent as the direct impact of the war in Ukraine, as well as second-round effects, feeds through to consumer prices. The Bank of England's dilemma is becoming increasingly difficult as more frequent rate hikes risk tipping the UK into a recession whilst a more gradual approach could cause macroeconomic instability."

Urvish Patel, Associate Economist, NIESR¹

Why it matters for households

The 7.0 per cent headline rate is a measure of how much the prices of a basket of goods and services have risen over the period covered by the CPI and CPIH measures, so it describes the pace at which the cost of living was increasing in March 2022 rather than a change in any single bill¹. NIESR's separate underlying measure, at 5.6 per cent, strips out the most extreme price movements to give a reading of the general trend¹. The regional figures show the pace of underlying inflation differed across the UK, from 6.4 per cent in London to 4.9 per cent in Wales¹.

NIESR links the outlook to declining real wages and increased payroll taxes, which it says erode household finances¹. Its forecast has inflation averaging 7 per cent over 2022 and likely remaining above target until 2024¹. The Bank of England's target for inflation has not been reported in this release.

What happens next

NIESR expects the Monetary Policy Committee to continue raising interest rates through 2022, which it says could further dampen consumer confidence¹. It forecasts inflation to peak above 8 per cent in the third quarter of 2022¹. No further dates have been reported.

Sources1 cited