However, while the figures came in better-than-expected, economists remain cautious about reading too much into the figures.
Hargreaves Lansdown senior economist, Ben Brettell, said: “Talk of higher interest rates on the back of today’s data is premature, though. Although inflation rose by more than expected, the overall trend remains weak, and places little pressure on the MPC.”
And, he pointed out, “Core inflation, which strips out volatile components like food and energy, rose to 1.5% in March, but this is still significantly below the Bank’s 2% CPI target.”
And, while he agrees that policymakers need to remain “mindful” of the risk that inflation could overshoot at some point, Brettell said the country continues to battle a number of headwinds.
“Consumer spending, aided by low inflation, low unemployment and rising wages, has been the engine of economic growth lately. But recent surveys suggest consumers reined in their spending in March – perhaps the first sign of nerves ahead of June’s EU referendum.”
Adrian Lowcock, head of investing at AXA Wealth added: “The return of inflation in the UK will be welcome, given many investors were fearing a deflationary spiral at the start of the year as China devalued it’s currency and Japan introduced negative interest rates.
“However, we do not think this is a signal for the Bank of England to raise interest rates soon. Although the UK economy continues to grow, albeit weakly, the outlook for the global economy is far from healthy. Concerns over China, Europe and BREXIT will continue to dominate markets and policy makers’ decisions for now.”
Henry Dixon, manager of the Man GLG Undervalued Assets Fund, strikes a more optimistic tone, however, agreeing that the focus needs to be on core CPI, but saying: “we believe this figure is a yardstick for where the official figure will jump to in the third quarter of the year, as we lose the base effects of the fuel price decline.
“Coupled with the rise in the national living wage which is also taking hold, we think the narrative will increasingly move away from deflation as we progress through 2016.”
According to the Office for National Statistics, the CPI 12-month rate stood at 0.5% in March, up from 0.3% in the year to February.
While it pointed out that the rate remains low by historical standards, the ONS said that it has been increasing gradually since October 2015.
“Similar to 2015, the downward pull on inflation continues to come from prices for food and non-alcoholic beverages, transport, and recreational and cultural goods and services.”
This downward pull from transport was lower in March, however, the ONS said, largely as a result of a smaller increase in petrol prices than the previous year.
And, they have been “counterbalanced” by an upward pull the prices of other goods and services, “most notably restaurant and hotel bills, and education costs such as university tuition fees.”
