Inflation plummets as impacts of lockdown kick in

Writer,

April saw a dramatic fall in inflation, down to 0.8% from the 1.5% in March. This marks the lowest rate for CPI inflation since August 2016.

Oil prices have dragged inflation lower again, as the price of the black stuff plummeted and petrol forecourts stood empty during lockdown. The drop in oil saw petrol prices fall to a four-year low, with petrol down 10.4p a litre. This, coupled with the fact the market for air fares and second-hand cars has ground to a halt, dragged down transport costs. The drop in oil also meant the cost of utility prices dropped to provide the lowest contribution to inflation in almost a decade.

The cost of clothing and footwear was another contributor to drag the rate down, as people aren’t buying more clothes to sit in the house in during lockdown, meaning prices have fallen. There is already talk of large sales on the high-street when shops can re-open in order to get rid of stock and draw customers back in, so we could well see this trend continue. The one anomaly to this was that prices of knitting wool rose, as the nation took up new crafting hobbies to keep themselves occupied during lockdown, causing a spike in demand for wool.

A surge in demand for toys, games, crafting kits and computer games to keep children entertained during school closures caused the biggest upward driver to prices for April. And for parents, and the rest of the nation, there has been a rise in alcohol costs as more people drink at home now their local pub is off limits.

The inflation news does provide a boost for savers, who for the first time in ages can now get above inflation interest rates on easy-access savings accounts – from more than one account. However, the past few weeks have seen a sea of cuts from providers, following the Bank of England’s base rate cut and competitors cutting their rates. This means that these inflation-busting savings rates are likely to vanish quickly – with the exception of NS&I, which recently reversed its planned cuts to rates.

The ONS had already acknowledged the problems of getting accurate pricing to calculate inflation and has given a list of the 90 items it’s impossible to add to its virtual shopping basket, which range from a pint of beer in the pub to child minder costs, the price of a manicure and theatre tickets. As the UK slowly re-opens some of these costs will be available again, giving a more accurate picture of inflation.

Take a look at the ONS figures here.

These articles are for information purposes only and are not a personal recommendation or advice.


ajbell_laura_suter's picture
Written by:
Laura Suter

Laura Suter is Personal Finance Analyst at AJ Bell. She is a multi-award winning former financial journalist, having specialised in investments. Laura joined AJ Bell from the Daily Telegraph, where she was investment editor. She has previously worked for adviser publications Money Marketing and Money Management, and has worked for an investment publication in New York. She has a degree in Journalism Studies from University of Sheffield.