Inflation rises in February to 2.8%

CPI annual inflation – the Government's target measure – was 2.8 per cent in February, up from 2.7 per cent in January, according to the Office for National Statistics (ONS).

The largest upward effect on the CPI annual rate came from transport costs due to increases in air fares in February, particularly for travelling to European destinations. Small upward contributions came from sea fares and purchase of motor vehicles, with prices for both increasing by more than a year ago. These were partially offset by a large downward effect from fuels and lubricants, with prices for petrol falling in February, compared with an increase last year.

Further large upward contributions came from:

Miscellaneous goods and services, where prices for personal care appliances increased in February by more than a year ago;

Food and non-alcoholic beverages, where price increases particularly for fresh food were partially offset by price cuts for shop bought milk; and

Furniture, household equipment and routine maintenance, where prices for furniture continued to recover from January sales and generally rose by more than a year ago.

The largest downward effect on the CPI annual rate came from recreation and culture, due to price changes for games, toys and hobbies. Prices for computer games fell in February compared to large increases a year ago, with smaller effects from price cuts in children’s toys.

RPI inflation rose to 4.6 per cent in February, from 4.2 per cent in January. As in January, the largest upward contribution came from housing, mainly for those housing costs excluded from the CPI. There was a large upward effect from mortgage interest payments, with those lenders who had not already done so passing on January’s quarter point increase in the Bank rate. There was also a small upward contribution from depreciation, which rose this year by more than a year ago, reflecting movements in the smoothed house price index used to calculate this component.

RPIX inflation – the all items RPI excluding mortgage interest payments – was 3.7 per cent in February, up from 3.5 per cent in January.

As an internationally comparable measure of inflation, the CPI shows that the UK inflation rate is above average for the European Union as a whole. The provisional inflation rate for the EU 27 in February was 2.1 per cent, compared with the UK rate of 2.8 per cent for the corresponding period.

Ian Kernohan, Economist, RLAM, comments on today's UK inflation data: “While inflation has come in higher than the market expected, we have yet to see the effect of utility price reductions in the data.

“Together with lower fuel prices, these should ensure that CPI fall backs to the 2% target before the end of the year. This data should not affect next month’s MPC meeting, as inflation remains close to their existing projections. The MPC will pay more attention to activity data such as retail sales, the PMIs and the global economic situation, particularly the US housing slowdown.”