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Inflation at 0.7% in March as petrol prices rise


The UK inflation rate has recently risen to 0.7% in March, an increase from 0.4% in February.


The BBC reports that the increasing inflation rate has been largely attributed to a rise in fuel prices as well as transport and clothes.

Fuel prices especially saw their largest annual increase in March since January 2020, for this reason, inflation is forecasted to be even higher in the following months.


The Bank of England has stated that inflation could reach 1.9% by the end of 2021, some experts state that it could exceed 2%, according to the BBC.


The increase in fuel price, as well as transport, is likely due to demand-pull inflation which has occurred last month.


Lockdown restrictions began to ease in March within England, for this reason, individuals were now able to travel a lot more from their homes rather than being bound to work, or education, and home.


Consumers were now able to travel to non-essential establishments and are also able to meet with family and friends, for this reason, demand for fuel has increased as consumers are leaving their houses more.


So, as the demand for fuel increases, fuel prices also go up.


This is the same for clothing and transport, more people are buying clothing as they are going out of the house and, with the opening of physical stores, some consumers are eager to buy clothes in person again.


However, because fuel is a much more heavily weighted commodity than clothes are because it takes up a lot more of a person’s income, the rising fuel prices are mainly the reason why inflation has increased.


Heavily weighted essentially means that it has a larger effect on the inflation rate, everyone buys fuel, consumers and businesses alike, and, they likely buy it at a much larger scale than items such as clothing.


This is because consumers need fuel for transport and business will mainly use it for logistical purposes.


So, as business and consumer activity has increased, their spending has also risen, thus driving demand for fuel upwards and increasing its price.


And, because fuel is a heavily weighted commodity, it has had a more substantial effect on inflation, thus pushing it upwards.


Therefore, experts believe that inflation will further increase as once the hospitality and tourism sectors bounce back into the economy, they will also drive the demand for fuel upwards as tourists especially will require transport services.


This future economic activity will enable the UK to experience good levels of economic growth as well as inflation which is hopefully within the 2% government target.

 

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