Friday 18 October 2019

Inflation rises but remains below Bank of England target

Food and alcohol price rises were offset by weaker growth in clothing.

Food and alcohol prices were up slightly in February (Chris Radburn/PA)
Food and alcohol prices were up slightly in February (Chris Radburn/PA)

By Alys Key, Press Association City Reporter

Inflation rose in February, but remained below the Bank of England’s target as rising prices for food and alcohol were offset by weaker growth in clothing and footwear.

Figures from the Office for National Statistics (ONS) show the Consumer Prices Index (CPI) rose to 1.9% last month.

Economists had expected inflation to hold steady at 1.8%, after the January rate came in below the Bank of England’s 2% target for the first time in two years.

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(PA Graphics)

CPI including owner-occupiers’ housing costs (CPIH) – the ONS’s preferred measure of inflation was unchanged at 1.8% in February.

Mike Hardie, head of inflation at the ONS, said: “The rate of inflation is stable, with a modest rise in food as well as alcohol and tobacco offset by clothing and footwear prices rising by less than they did a year ago.”

The price of food was up 0.4% on the month compared with 0.1% last year and a 0.9% increase on the month for alcohol and tobacco versus flat prices in February 2018.

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(PA Graphics)

Beer in particular showed an increase, up 0.6% between January and February compared with a decline of 1.1% last year.

Annually, food and alcohol inflation hit 1.1% and 5.1% respectively.

Upward pressure also came from recreation and culture, as prices rose between January and February 2019 compared with a smaller rise between the same two months last year. Computer games had the biggest effect.

But clothing and footwear prices had a downward effect. Although price tags were higher in February as usual, following the January sales, the increase was smaller than the same period last year.

Annually, clothing and footwear prices dropped 2%.

Howard Archer, chief economic adviser at EY Item Club, said: “While February’s rise in inflation may be marginally disappointing for consumer purchasing power, it is still looking appreciably better than in mid-2018 – especially as earnings growth retained its firmer tone in January. Real earnings growth is currently 1.5%, the best level since end-2016, although still appreciably below long-term norms.”

He added that different Brexit outcomes were likely to affect the measure in coming months.

He said: “Our suspicion is that inflation will spike significantly higher if the UK leaves the EU without a “deal” primarily due to a likely marked fall in sterling even though the government has indicated that under a temporary scheme 87% of imports by value would be eligible for zero-tariff access compared to 80% of imports currently being tariff free.”

At the pumps, motorists saw lower fuel costs last month, as petrol fell by 0.5p per litre on the month to 119.1p. Diesel also fell by 0.2p to 129.3p.

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(PA Graphics)

The Retail Prices Index (RPI), a separate measure of inflation, was 2.4%, down from 2.5% in January. It is the lowest since October 2016 when it was 2.2%.

It comes ahead of the Bank of England’s interest rate decision on Thursday, when the Monetary Policy Committee (MPC) is widely expected to leave rates unchanged at 0.75%

KPMG UK’s chief economist Yael Selfin said the central bank may need to act more aggressively in future.

She said: “Our expectations are for inflation to average around the Bank of England’s 2% target this year but to rise further in 2020, putting pressure on them to act more aggressively than markets currently anticipate.”

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