Business

Inflation rate rises, but remains below Bank of England target as Brexit deadline looms

Rising prices for food and alcohol contributed to an increase in the inflation rate

INFLATION rose unexpectedly last month, but remained below the Bank of England's target as rising prices for food and alcohol were offset by weaker growth in clothing and fuel.

The latest figures from the Office for National Statistics (ONS) show the Consumer Prices Index (CPI) rose to 1.9 per cent in February.

Economists had expected inflation to hold steady at 1.8 per cent, after the January rate came in below the Bank of England's 2 per cent target for the first time in two years. It is the first increase recorded since last August.

Mike Hardie, head of inflation at the ONS said the current rate 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 per cent on the month compared with 0.1 per cent last year and a 0.9 per cent increase on the month was recorded for alcohol and tobacco versus flat prices in February 2018.

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

Annually, food and alcohol inflation hit 1.1 per cent and 5.1 per cent 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 per cent.

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.

Danske Bank chief economist, Conor Lambe said despite the small rise in inflation, the rate of real wage growth remains "firmly in positive territory".

“Looking beyond the headline figure and at the different categories of goods and services, the largest price rises were for alcohol and tobacco and in the communication category which includes postal services, mobile phones and internet subscriptions," he said.

“There were also quite strong price rises within the transport category, for example the price of new cars increased by 5 per cent over the year to February, and for recreational activities.

“The one category in which prices fell over the year was clothing and footwear. This was the sixth consecutive month in which the price of clothes and shoes decreased."

Howard Archer, chief economic adviser at EY Item Club added that the impending Brexit outcome was likely to impact upon inflation in the coming months.

"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 per cent of imports by value would be eligible for zero-tariff access compared to 80 per cent of imports currently being tariff free," Mr Archer said.

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

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

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