Inflation plunges to four-year low as fuel costs nosedive

UK inflation has plunged to its lowest level for nearly four years last month as fuel costs nosedive – but toys, puzzles and alcohol are getting more expensive as families get used to coronavirus lockdown.

Official figures showed the CPI measure tumbled by more than expected to 0.8 per cent last month – the lowest level since August 2016 and down from 1.5 per cent in March.  

The fall was largely driven by petrol prices, which slumped by 10.4p a litre – the biggest reduction since unleaded petrol records began in 1990. Energy prices also pushed inflation lower as regulator Ofgem reduced its default tariff cap.

The news will intensify speculation that inflation could be close to zero later in the summer, as coronavirus brings the world economy grinding to a halt. 

However, the figures also reflected the social effects from lockdown. Items like computer games consoles, craft kits, dolls, construction toys, and sit and ride toys were up in the month.  

Prices for whisky, lager and cigarette also rose.  

Jonathan Athow, deputy national statistician for economic statistics at the ONS, said: ‘While the coronavirus limited the availability of some goods and services, its effect on prices was more muted.

‘Falling petrol and diesel prices, combined with changes to the domestic energy price cap were the main reasons for lower inflation in April.

‘Games, toys and hobbies saw rising prices, perhaps as people occupied their time at home.

‘Food prices grew no more quickly than other goods and services, though fresh vegetables did see stronger rises.’

The ONS said the Ofgem cap changes last month meant that gas prices fell 3.5 per cent between March and April, while the cost of electricity edged 0.2 per cent higher, compared with hikes of 9.3 per cent and 10.9 respectively a year ago.

Amid the effects of the coronavirus crisis, prices of fresh vegetables rose month-on-month in April, possibly as retailers switched to British-grown produce amid the pandemic.

Long-life products – such as cook-in sauce and frozen fish – also saw price hikes last month as consumers stocked up to weather life in lockdown.

But the ONS cautioned over the challenges of collecting the inflation data, with 90 goods or services unavailable in April as panic buying and stockbuilding left some supermarket shelves bare across the UK.

The data also showed the Retail Price Index (RPI), a separate measure of inflation, was 1.5 per cent in April, down from 2.6 per cent in March. 

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said inflation had taken a ‘big leap towards zero by the summer’ as he said retailers were planning ‘further large price cuts’.

He predicted inflation would recover next year but was likely to remain below 2% for much of 2021.

‘The inflation outlook, then, supports the (Bank of England’s) Monetary Policy Committee doing more to stimulate the economy at its next meeting in mid-June – we look for a further £100 billion of quantitative easing to be announced,’ he added.

Chancellor Rishi Sunak gave a grim warning yesterday that there might be no ‘immediate bounceback’ from economic meltdown caused by coronavirus.

The Chancellor highlighted the threat of ‘scarring’ as he said it would ‘take time’ for people to get ‘back to normal’ even after the lockdown ends.

He pointed to predictions that unemployment will be in ‘double digit’ percentages by the end of the year.

The gloomy note, as Mr Sunak gave evidence to the Lords Economic Affairs Committee, came after the OBR watchdog and Bank of England warned UK plc faces the worst recession in 300 years.