Retail price falls freeze inflation

The official measure of inflation, the Consumer Prices Index (CPI), remained at 2.5% last month - marginally below economists' expectations - according to the Office for National Statistics (ONS).

Reductions in bedroom and kitchen furniture prices had the biggest deflationary effect as retailers looked to lure in hard-pressed shoppers over the early Easter.

Rate-setters on the Bank of England's Monetary Policy Committee (MPC), who had access to this month's data before cutting rates to 5% last week, will have been relieved that CPI has not crept further above its 2% target.

But this month's inflation data - which also revealed lower price rises than last year for clothing, as well as cheaper computer games and pre-school toys - offers more evidence of the difficulties faced by retailers.

The British Retail Consortium's March survey registered the first fall in like-for-like sales for nearly two years last month despite the early Easter holiday season, as poor weather hit business.

But factory gate price figures also released this week highlight the remaining inflation risks and could limit the pace of further interest rate cuts from the MPC.

The ONS figures showed the highest upward effect on inflation coming from transport costs, mainly due to rising air travel prices on European and long-haul routes. The annual rate of increase for transport costs reached 7% - the highest since records began in 1997.

Gas bills - unchanged this March but on the way down a year earlier - added to inflationary pressure. Although petrol prices rose by an average 2.3p a litre last month, this had less of an impact due to similar price hikes a year earlier.

The Retail Prices Index - seen as a more representative inflation measure because it includes mortgage repayments - fell from 4.1% to 3.8% in March. This was due to lenders passing on the Bank of England's February interest rate cut, compared to a year earlier when rates remained unchanged.