The UK’s inflation rate slipped to 1.5 per cent in March primarily driven by falling clothes and fuel prices, official data has shown.
Figures from the Office of National Statistics, published today (April 22), showed the consumer prices index had dropped from 1.7 per cent in February to 1.5 per cent for March this year.
The ONS said the largest downward contribution came from the price of motor fuels — as the oil price crash converted to lower costs at the petrol pump — and clothing.
Meanwhile, rises in air fares produced the largest upward contribution and partially offset the overall negative trend.
Global prices for crude oil have fallen sharply in response to reduced global demand during the the coronavirus pandemic and supply issues.
In early March, oil prices tanked by almost a third as Russia broke its partnership with Opec, prompting Saudi Arabia to launch an aggressive price war targeting the rival producer.
By the end of March the price of oil had hit an 18-year low as a lack of demand due to the coronavirus pandemic — matched with an excess of supply from the price war — saw Brent Crude Oil, the international benchmark oil price, fall to $21.76 (£17.68) a barrel.
Laura Suter, personal finance analyst at investment platform AJ Bell, said: “Even before the recent capitulation, the price of oil was on the slide in March and this dragged inflation down.
“Oil prices have a massive impact on the UK’s inflation rate and with prices at the pump and home energy costs getting cheaper we would expect this trend to continue for the next couple of months.”
Over the past few days the price of oil has dropped even further. On Monday night (April 20) producers, desperate to sell due to a lack of storage, were paying $40 (£32) a barrel for ‘buyers’ to take their oil as West Texas Intermediate — the US oil benchmark — hit -$40.
It was the first time the price of oil had slipped into negative figures. WTI has rallied since and now has an $11 (£9) price tag, but the crash filtered through to international prices and Brent now costs $17 (£13) a barrel, down from $26 (£21) on Monday.
It is likely the recent historic lows in oil prices will affect April's inflation figures, released next month.
Robert Alster, head of investment services at Close Brothers Asset Management, said: “A collapse in consumer demand combined with plummeting oil prices meant that declining inflation in March was inevitable, and is likely to continue through the duration of the Covid-19 crisis.
imogen.tew@ft.com
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