The inflation rate including owner occupiers’ housing costs (CPIH) rose by 8.9 per cent in the 12 months to March 2023, down from 9.2 per cent in February, according to the Office for National Statistics (ONS).
The ONS said the largest upward contributions to the annual CPIH inflation rate in March 2023 came from housing and household services (principally from electricity, gas and other fuels), and food and non-alcoholic beverages.
Food inflation at 45-year peak
ONS figures show that prices for food and non-alcoholic beverages rose by 19.2 per cent in the year to March 2023, up from 18.2 per cent in February.
The annual rate for this category in March 2023 is the highest seen for more than 45 years. Indicative modelled estimates by the ONS suggest that the rate would have last been higher in August 1977, when it was estimated to be 21.9%.
The annual inflation rate for housing, water, electricity, gas and other fuels was 11.6% in March 2023, down from 11.8% in February. The main driver behind the change was liquid fuels, with prices of heating oil falling by 6.7% between February and March this year, compared with a rise of 44% between the same two months a year ago.
Relief but prices are still rising
Alice Haine, personal finance analyst at Bestinvest noted that, despite the fall, it would bring limited respite to financially stretched families.
She said: “Softening inflation will come as a relief for households, offering hope that the financial squeeze is well and truly on the retreat, though a headline reading of 10.1% won’t deliver much relief to wallets just yet as prices are still rising at rates that would have seemed extraordinary at the start of last year.
“When you consider the additional challenges posed by higher mortgage costs, falling real incomes, higher taxes and the prospect that the Bank of England could still hike interest rates for the 12th time in a row next month, households should not start splashing the cash just yet.
In terms of the mortgage market specifically, Adam Oldfield, chief revenue officer at Phoebus Software, highlighted that drop in the inflation rate could prompt the Bank of England to hold off on another base rate reduction.
He said: “As ever, we waited with baited-breath for the latest inflation figures, any news that may mean the Bank of England takes its foot off the interest rate accelerator would be good for the housing market. So, the news today, coupled with the fact that GDP is still not in decline, could well be the catalyst we have all been hoping for.
“The country is holding its head above water and confidence appears to be returning. Despite the lull at the beginning of the year, the housing market has been picking up in recent weeks with the usual springtime boost, and more lenders are revising rates every day. There is no doubt that affordability is a worry for many households and lenders will be working around the age old of dilemma of continuing to meet lending targets versus more defaults down the line. Being prepared for both scenarios is a juggling act, but one that every lender needs to have systems and people in place to deal with.”
