The UK consumer prices index rose by 10.1% in the 12 months to March 2023, which is only slightly lower than last month’s figure of 10.4%. Although concerning for consumers, this short-term figure will not change anything for most pension schemes, according to one consultancy. 

 

The Office for National Statistics said the easing in the annual inflation rate in March 2023 mainly reflects price changes in transport, particularly for motor fuels. Other downward effects came from housing and household services, furniture and household goods, clothing and footwear, and restaurants and hotels. However, these were partially offset by upward price pressure from food and non-alcoholic beverages, and recreation and culture. 

 
 

 

 

The slightly lower price increases in March follow the unexpectedly high inflationary growth in February. 

 

Consulting firm XPS Pensions Group said although the latest figure is higher than market estimates, it “provides welcome encouragement that inflation can be kept to manageable levels by the end of the year”. 

 

Longer term inflation expectations – which are most important for pension fund investors – have remained broadly unchanged over the previous month with future falls in inflationary growth already priced in, according to the consultancy, meaning the latest figures are unlikely to have a material impact on pension scheme funding levels. 

  

“Although long-term inflation expectations have remained unchanged over the previous month, market conditions for DB pension schemes are significantly more favourable today than they were a year ago,” said Charlotte Jones, a senior consultant at XPS. 

 

The firm estimates funding improvements of around £270bn in aggregate over the last year driven by the significant changes in long-term inflation and interest rate expectations.  

 

“However, individual schemes will be impacted differently. With some relative stability in market conditions, it is important that schemes assess their funding position and opportunities to reshape their long-term strategies,” Jones added. 

 

Inflation is proving more persistent than some, including the Bank of England, originally expected. 

 

The continued price rises have led some to believe that not all of the upward price pressure is down to input costs or higher wages. 

 

The latter has been a bone of contention after Bank of England governor Andrew Bailey last year urged workers to show restraint in wage demands while prices were increasing. Trade union Unite said its analysis of 241 non-asset management firms in the FTSE 350 shows profit margins in the first half of 2022 were 89% higher than the same period in 2019. The overall profit margin of the companies was 10.7% in the first half of 2022, up from 5.7% in the first half of 2019 and 9.7% in the first half of 2021. 

 

Unite general secretary Sharon Graham said: “The public are beginning to cotton on that it’s not wage rises driving prices, its rampant corporate profiteering. There’ll be no end in sight to the crisis until we tackle that scourge.” 

 

What is currently driving inflation in your view?