|Month over Month||0.3%||0.4%||0.2%|
|Year over Year||0.4%||0.5%||0.3%|
Consumer prices were somewhat firmer than expected in March. In fact, a 0.4 percent monthly rise was enough to lift the annual CPI rate from 0.3 percent in February to 0.5 percent, its highest mark since December 2014.
The main boost to the change in the 12-month headline rate came from transport where prices rose 1.7 percent on the month or more than double the 0.7 percent gain seen over the same period in 2015. Air transport saw a 22.9 percent monthly surge and almost certainly reflected the early timing of Easter. Elsewhere, clothing and footwear charges were 1.0 percent higher than in February after a 0.1 percent drop a year ago and restaurants and hotel prices increased 0.5 percent compared with a 0.2 percent rise. The main downward impact came from food and non-alcoholic drinks (monthly minus 0.6 percent after minus 0.2 percent).
As a result, the core CPI advanced a sizeable 0.6 percent on the month which raised its yearly rate by 0.3 percentage points to 1.3 percent, the strongest outturn since August 2014. However, again this will have been temporarily impacted by Easter.
Despite March's acceleration, inflation is still far too short of its 2 percent target to renew any talk about hikes in interest rates, particularly since April will probably see an unwinding of the Easter effects. Rather, amidst increasing signs that economic growth last quarter may have cooled to its slowest rate since the fourth quarter of 2012, any near-term risks to a steady 0.5 percent Bank Rate remain on the downside. This week's BoE MPC meeting is very unlikely to produce any surprises.
The consumer price index (CPI) is defined as an average measure of the level of the prices of goods and services bought for the purpose of consumption by the vast majority of households in the UK. It is calculated using HICP methodology developed by Eurostat, the European Union's statistical agency. The CPI is the Bank of England's inflation measure.
The consumer price index is the most widely followed indicator of inflation. An investor who understands how inflation influences the markets will benefit over those investors that do not understand the impact. In countries such as the UK, where monetary policy decisions rest on the central bank's inflation target, the rate of inflation directly affects all interest rates charged to business and the consumer.
Inflation is an increase in the overall prices of goods and services. The relationship between inflation and interest rates is the key to understanding how indicators such as the CPI influence the markets - and your investments.
Inflation (along with various risks) basically explains how interest rates are set on everything from your mortgage and auto loans to Treasury bills, notes and bonds. As the rate of inflation changes and as expectations on inflation change, the markets adjust interest rates. The effect ripples across stocks, bonds, commodities, and your portfolio, often in a dramatic fashion.
By tracking inflation, whether high or low, rising or falling, investors can anticipate how different types of investments will perform. Over the long run, the bond market will rally (fall) when increases in the CPI are small (large). The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.
For monetary policy, the Bank of England generally follows the annual change in the consumer price index which is calculated using the European Union's Eurostat methodology so that inflation can be compared across EU member states.