Business

Inflation rises by 2.3 per cent as costs of fuel and food bite into pay packets

Rising petrol prices helped push February's inflation figure to 2.3 per cent

FOOD and fuel prices helped push inflation to over two per cent last month – its highest level for three-and-a-half years.

The Office for National Statistics (ONS) said the Consumer Price Index (CPI) measure of inflation reached 2.3 per cent in February, significantly beyond the Bank of England's two per cent target.

And as the first above-target rise since November 2013, the move is expected to heap pressure on the Bank's Monetary Policy Committee (MPC) to hike interest rates beyond 0.25 per cent later this year.

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.

Food prices were further impacted due to poor weather conditions in southern Europe where crops were ravaged and supermarkets left with sparsely populated vegetable shelves.

The ONS said the price of iceberg lettuce jumped 67.2 per cent between January and February after falling 0.8 per cent a year earlier.

A jump in transport costs was also driving inflation higher, with motor fuels rising 1.2 per cent month-on-month in February.

Dr Esmond Birnie, senior economist at Ulster University, said: "Rising transport costs – mainly in terms of petrol and diesel – are the main explanation for this rise.

"But also playing a part are rising food prices - those who enjoy iceberg lettuces will have noticed a particularly steep increase in recent months.

"This trend increase in inflation is likely to continue and could take the rate to beyond three per cent which implies bad news for wage earners and savers."

While an immediate rise in Bank of England interest rates was probably not on the cards, Mr Birnie said the ONS data suggested that it would be harder to maintain the growth of consumer spending and that, in turn, would imply a general economic slowdown.

Richard Ramsay, chief economist with Ulster Bank, said energy costs, most notably liquid fuels such as home heating oil, had seen a price hike in some areas of over 60 per cent.

"This impacts disproportionately on Northern Ireland, where a higher proportion of households heat their homes with oil," he said.

"Meanwhile, electricity and gas bills, as of February, were still lower than the corresponding period a year ago. But this will change in the months ahead, with double-digit price hikes already announced by some gas suppliers locally yet to come into effect."

As a result, he said workers' pay demands would now intensify.

"Pay demands, which have been relatively subdued in recent years, will intensify as the purchasing-power of their pay-packets gets eroded," Mr Ramsay added.

"To coin a phrase from the fashion world, the consumer sweet spot is 'so last year'."

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