Inflation continues to cool but it’s too soon to declare victory

• Inflation falls to two and a half year low of 3.2%
• Falling food inflation plays a huge part in the story as it drops to 4% - this compares with 19.2% in March 2023
• Service inflation proving sticky, down just 0.1% to 6%

"Inflation is moving in the right direction and anyone who has wheeled a trolley around a supermarket over the past few weeks will have noticed that prices aren't delivering those checkout shocks in the same way they were this time last year.

"Next month should look even better as the falling energy price cap is finally counted in the numbers, even if many households won't have noticed much difference to their outgoings as their direct debits remain elevated to pay off outstanding balances.

"But even in this set of figures there are a few troubling issues, notably the stickiness of service sector inflation. This could be exacerbated by the increase in the National Living Wage which is putting pressure on many businesses to hike prices again to balance their books.

"We know stuff is costing less as the impact of all that post-pandemic supply chain disruption washes through the numbers. Just compare goods inflation of 0.8% with the 12.8% we were facing only twelve months ago. But the oil price is still hovering perilously close to $90 a barrel and even many school kids now understand how the fluctuating price impacts more than just motorists.

"This print is unlikely to persuade Bank of England policy makers, who just a couple of months ago were voting for further hikes, that the time is now right to start to cut. Andrew Bailey might be making positive noises about the pieces of the economic puzzle falling into place for a change in policy, but markets are far from convinced.

"Looking at the numbers after the inflation print was released, expectation of a June cut has fallen back significantly and more than 50% now think even August will be too soon."