Inflation rising thanks to high fuel and food prices
Rising fuel and food prices pushed inflation beyond the Bank of England’s 2% target in February, hitting its highest level since September 2013.
The Office for National Statistics (ONS) said the Consumer Price Index (CPI) measure of inflation reached 2.3% last month, up from 1.8% in January.
The move is the first above-target rise since November 2013 and will put pressure on the Bank’s Monetary Policy Committee (MPC) to hike interest rates beyond 0.25% this year.
It comes as the ONS switched to its preferred measure of inflation from CPI to the Consumer Price Index including owner occupiers’ housing costs (CPIH), which includes costs associated with living in, maintaining and owning a house. The CPIH measure also reached 2.3%, up from 1.9% in January.
ONS deputy national statistician Jonathan Athow said: “Inflation has risen to its highest rate for almost three and a half years with price increases seen across a range of items but with food and fuel having the largest impact.”
The price of food rose by 0.3% between last month and February 2016, after falling on the year for 31 consecutive months.
The supermarket price war had kept a lid on price rises, but food is now becoming more expensive as producers begin to pass down soaring import costs triggered by the pound’s slump since the EU referendum result.
Overall food prices lifted 0.8% between January and February, in contrast to a smaller rise of 0.1% a year earlier, after shock weather conditions in southern Europe ravaged crops and left supermarkets and restaurants grappling with a vegetable shortage. The ONS said the price of iceberg lettuce jumped 67.2% between January and February after falling 0.8% a year earlier.
Anna Leach, head of economic intelligence at CBI, said: “While inflation has risen above the Bank of England’s 2% target, it is still relatively low by historical comparison. Nonetheless, inflation is likely to rise further still, on the back of stronger fuel prices and as the impact of the weaker exchange rate feeds through.
“Also, other price data indicates rising costs for businesses, with input prices up 19% on the year.
“Addressing regional disparities in productivity performance and delivering a targeted, meaningful industrial strategy will deliver the competitiveness boost needed to help businesses succeed in the global marketplace.”
A jump in transport costs was also driving inflation higher, with motor fuels rising 1.2% month-on-month in February. The price of petrol lifted by 1.6p per litre at the pumps to 120.2p for February, while diesel increased by 1.3p per litre to 123.2p over the period.
Kristin Forbes, one of the nine ratesetters on the MPC, broke rank to vote for an interest rate hike to 0.5% last week amid fears that inflation is “rising quickly and was likely to remain above target for at least three years”.
The Bank of England, which will continue to use CPI as its measure for setting interest rates, predicted inflation to lift to 2% in February, peaking at 2.8% in the first half of next year, before falling back to 2.4% in three years’ time.
The Retail Prices Index, a separate measure of inflation which includes council tax and mortgage interest payments, rose to 3.2% in February, up from 2.6% in January.
Stephen Devlin, the New Economics Foundation’s senior economist, said costs were continuing to outstrip wages for the majority of households.
“Today’s inflation rise mounts further pressure on Britain’s households, with millions struggling under record levels of debt. Nominal wages have failed to keep up with rising costs for well over a decade now and the consequences will be inevitably felt most keenly by those on low incomes,” he said.
“The Prime Minister and Chancellor have sought to paint a rosy picture of Britain’s economic outlook ahead of Brexit, but today’s figures are a stark reminder of the reality – rising costs, debts and growing risk of stagflation.
“If sterling takes a further hit over the course of Brexit negotiations, it will be households who pay the price.”
Andrew Sentance, senior economic adviser at PwC, said: “It is no surprise to see inflation picking up further and going above 2%. This is the product of increasing global price pressures and the weakness of the pound.
“Inflation has been rising across a range of countries recently – including the United States and members of the Eurozone – as higher energy and food prices feed through to consumers.”
The pound jumped following the inflation announcement, rising 0.8% against the US dollar to 1.246.
Sterling was also 0.2% higher versus the euro at 1.154.