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Energy price cap set to keep inflation low in February

Falling petrol prices have been holding inflation back in recent months, with the trend set to continue in February

INFLATION is expected to have held steady below the Bank of England's target in February, thanks to the cap on energy prices.

Consensus estimates predict Office for National Statistics (ONS) figures will reveal on Wednesday that the Consumer Prices Index (CPI) rate of inflation was flat at 1.8 per cent last month.

It is set to match January's rate, which fell after the introduction of a cap on standard variable tariffs by energy watchdog Ofgem at the start of the year.

This is likely to continue to be the main factor keeping inflation low in February, putting it below the Bank of England's 2 per cent target.

But some factors could cause a surprise in February's rate, according to Samuel Tombs, chief UK economist at Pantheon Macroeconomics.

"The upside risk partly reflects the fact that January's rate was just 0.002pp from rounding up to 1.9 per cent," he said.

"Inflation also likely will come under upward pressure in February from the food component, which we expect to rise to 1.2 per cent, from 0.9 per cent in January."

According to the British Retail Consortium (BRC), food shop price inflation in February was 1.6 per cent, up slightly from January's 1.5 per cent.

Falling petrol prices have also been holding inflation back in recent months, with the trend set to continue in February.

But Victoria Clarke, an economist at investment firm Investec, said this was unlikely to have a major effect.

"While this trend continued in February, it did so at a more modest pace and will therefore have a marginal effect on overall CPI when set against a similarly small decrease a year earlier," she said.

"In fact, its impact ought to be neutralised by the uprating of duty rates on both wine and high-strength cider by RPI that was announced in the Autumn Budget."

Services inflation is expected to be steady at 2.5 per cent, without its usual boost from the half-term holidays.

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