"These latest figures, which only take into account eight days of the official UK lockdown, already show downward pressure on prices as demand has fallen away."
CPIH - the ONS' headline measure which includes owner occupiers’ housing costs - and the CPI 12-month rate both fell by 0.2% over the month.
The largest contribution to the CPIH 12-month inflation rate came from housing, water, electricity, gas and other fuels.
Falls in the price of motor fuels and clothing resulted in the largest downward contributions to the change between February and March.
Rises in air fares produced the largest, partially offsetting, upward contribution to change.
Rachel Winter, associate investment director at Killik & Co, commented: “Once the nation shut its doors and retreated inside to see out the coronavirus pandemic, the way we use our normal goods and services shifted almost beyond recognition. These latest figures, which only take into account eight days of the official UK lockdown, already show downward pressure on prices as demand has fallen away. While sinking oil prices have already been reflected in February’s inflation figure, we will see the effect of this month’s further weakness at the next reading.
“However, something to bear in mind is that the basket of goods measured for the official inflation reading is not reflective of what people are currently buying. For example, transport accounts for 12.1% of the basket, and restaurants and hotels for 9.6%, but most of us are spending zero on these two categories as we stick to the ‘stay at home’ instruction.
“It’s likely that the new ‘super products’ – food, cleaning and health products and even pet care – will remain in high demand for the next few months at the very least, and concerns have already been raised about price hikes in these categories. This may place additional pressure on households already feeling the strain with concern over job stability and wage growth, but an overall fall in price for less essential lines and record low interest rates should help. That said, the picture is a fast-moving one and the balance may shift very quickly as soon as the lockdown restrictions begin to ease. We will need to keep a close eye on spending patterns, pricing and the relevant ‘basket of goods’ to truly understand how our cost of living will change for the rest of this year.”
Robert Alster, head of investment services at Close Brothers Asset Management, added: “A collapse in consumer demand combined with plummeting oil prices meant that declining inflation in March was inevitable, and is likely to continue through the duration of the Covid-19 crisis. The Bank of England governor has already been clear that he’s opposed to both negative rates and monetary financing. Instead, in the near term, the scope of asset purchases may be widened. In the longer term, the Bank may consider changes to the inflation target.
“Looking to the future, we’re likely to see a year or so of limited inflation, before it’s mechanically boosted by the base effects of oil. Longer term, the path of inflation will depend on how much the global economy changes following this crisis."
