UK inflation saw a big pick-up in April, according to data out today, but drill down, and you find that inflation is not rising as fast as many economists were forecasting, just a few months ago.
Inflation rose to 2.7 per cent in April, against 2.3 per cent the month before. Core inflation, that's with food, energy and tobacco prices stripped out, rose to 2.2 per cent from 1.8 per cent the month before. But when you factor in the Easter effect you find that the changes were not so great, after all.
When it comes to calculating inflation, what happened a year ago matters, after all, the data provided a year on year comparison.
Last March inflation saw a big jump but was subdued, therefore, this time around it was the other way around.
At Easter time, air fares tend to shoot up, as they did this year and last. But last year Easter was in March, this year it was in April, hence the pattern of the last two months.
Sure, UK inflation rose to its highest level since 2013, but that was entirely predictable. It rose because the oil price and other commodities rose from the ten-year lows seen a year of so ago. And in the UK it also rose because of Brexit related falls in sterling.
But at the end of last year, many forecasters were predicting that U.K. Inflation would have passed three per cent by now. That it hasn't, appears to illustrate how globally, there is still a shortage of demand relative to potential output. This even appears to be the case in the US and UK where unemployment is so modest.
Households will feel the pinch, inflation is now almost certainly greater than the increase in wages, meaning real wages are probably falling. This is not good for retail but was wholly expected.
As for interest rates, when the Bank of England's rate-setting committee last met, one member, Kristine Forbes voted for a hike. But according to the minutes, none of the other members of the nine-strong committee plan to vote for a rise in interest rates anytime soon, unless inflation surprises on the upside. Well, it didn't, and as result, the odds of an increase in interest rates later this year are lengthening.