Tuesday, April 12, 2011
Inflation down, trade better
Posted by David Smith at 11:15 AM
Category: Thoughts and responses

For once there was a logic in the latest data releases. Overnight the British Retail Consortium told us that there was a record drop in retail sales value in the 12 months to March, 1.9%. Weak demand should mean inflationary pressures ease and, sure enough, consumer price inflation dropped from 4.4% in February to 4% in March.

It is hard to understate the importance of this release for the Bank. It provided a reminder that not all the inflation surprises are on the upside - the markets had expected no change in the rate - and it provided hope that eventually inflation can come back down in a decisive way.

Retail price inflation eased from 5.5% to 5.3%, CPI inflation excluding indirect tax changes dropped from 2.8% to 2.5% and CPI at constant tax rates from 2.7% to 2.4%. Though the biggest reason for the inflation drop was a record fall in food prices, which are volatile, this was good news. More here.

Completing the picture was a drop in Britain's trade deficit to 2.4 billion in February, from 3.9 billion in January. Weak demand should trim imports, at a time when exports are benefiting from global strength. More here.