UK inflation falls despite sugar tax and higher pump prices

Wednesday, May 23, 2018

Inflation fell to its lowest level for more than a year in April despite surging fuel costs and record price rises on soft drinks after the sugar tax came into force.

Figures from the Office for National Statistics (ONS) show the Consumer Price Index (CPI) fell to 2.4% last month, down from 2.5% in March.

Economists had been expecting inflation to stay steady at 2.5%.

The Government's sugar tax came into effect on April 6, pushing up soft drink prices, which saw their biggest ever rise for this time of year, up a record 2.8% month-on-month, and 6.2% year-on-year, according to the ONS.

However, many retailers have not passed on the cost of the tax to consumers yet, while some had increased prices in advance.

Mike Hardie, head of inflation at the ONS, said: "Inflation continued to slow in April, with air fares making the biggest downward contribution, due to the timing of Easter. This was partially offset by the rise in petrol prices.

"Soft drink prices saw their biggest ever rise for this time of year, due to the introduction of the sugar tax. However, many retailers still haven't passed the impact of the tax on to shoppers."

Sterling tanked following the news, falling 0.6% against the US dollar to 1.33. Against the euro, the pound was down 0.1% at 1.14.

Petrol prices rose by 1.5p per litre between March and April, while diesel lifted by 1.6p per litre, compared to a 1.8p per litre fall for both a year earlier.

Economists are expecting oil prices to rise further over the summer after Brent crude surged above 80 US dollars per barrel last week.

It is feared this could put the squeeze on households once more, potentially pushing inflation back up.