Investing.com -- Deutsche Bank (ETR:DBKGn) analysts on Friday projected a significant increase in the U.K.’s consumer price index (CPI) for April, with expectations set for a year-over-year rise to 3.42%.
This forecast comes as the country faces a confluence of factors that are likely to drive up inflation, including substantial hikes in energy and water bills, adjustments to vehicle excise duty, and the impact of the National Living Wage (NLW) and employer National Insurance Contributions (NICs).
The analysts at Deutsche Bank anticipate that these changes will particularly affect food, core goods, and certain service sectors, such as hospitality and leisure.
They also expect the core CPI, which excludes volatile food and energy prices, to jump to 3.72% year-over-year.
Services CPI is predicted to escalate even further, potentially reaching 4.92% year-over-year, with the Retail Price Index (RPI) climbing to 4.26% year-over-year.
Deutsche Bank’s analysis suggests that the timing of the index collection day, which they assume will be April 15, could significantly influence the inflation figures, especially in the context of hotel prices, package holidays, and airfares due to the later than usual Easter weekend.
In the housing sector, private rents are expected to remain steady, but social rents are forecasted to rise by 1% month-over-month. Other housing-related costs, including sewerage bills, could see an increase of nearly 21%.
For transportation, the analysts predict that airfares will see a 17% month-over-month increase, while vehicle excise duty and air passenger duty changes are expected to add 5-7 basis points to the headline CPI.
Communication prices are also set to rise, with broadband and mobile phone bills anticipated to see increases of 6.3% and 4%, respectively. The communication price basket overall is projected to go up by 4.4% month-over-month in the CPI measure.
For recreation and personal services, minimum wage and employer NICs increases are expected to be significant factors. Deutsche Bank estimates that catering prices will rise by 1.1% month-over-month in the CPI, with hotel prices potentially increasing by 6%. Package holiday prices are forecasted to go up by 0.3% month-over-month.
Core goods inflation is also expected to see a variety of price rises, with health goods, clothing, and furniture prices all anticipated to experience seasonal gains. In the food, alcohol, and tobacco categories, the analysts predict an overall rise of 0.4% month-over-month for the CPI basket, with an annual rate increase to 3.8%.
In the energy sector, while pump prices are expected to decrease, the Ofgem Price Cap is projected to push inflation higher. The energy basket is estimated to rise by 1.6% month-over-month, resulting in an annual CPI rate of -0.8%.
Looking ahead, Deutsche Bank expects a bumpy two quarters before inflation begins to descend.
They foresee headline CPI stalling at around 3.4% year-over-year for the rest of the year, peaking at 3.65% year-over-year in September.
Core CPI is also expected to remain elevated at 3.6% year-over-year over the same period. However, a gradual slowdown in services CPI is anticipated, dropping to around 4.4% year-over-year in Q4-2025.
The analysts project an average annual CPI rate of 3.3% for this year, 2.4% for next year, and 2% for 2027. For RPI, the annual rate is expected to track around 3.9% this year before slowing to 3.3% next year.