Inflation in biggest monthly rise since 2012

Inflation in biggest monthly rise since 2012

Inflation has broken through the Bank of England's (BoE) 2 per cent target following the largest month-on-month rise since October 2012.

The Consumer Prices Index (CPI) rose to 2.3 per cent in February from 1.8 per cent a month earlier. The last time inflation jumped as much was between September and October 2012.

The figure was also above the consensus expectation of 2.1 per cent - with the largest surprise being a rise in core inflation, which rose from 1.6 per cent to 2 per cent.

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This month's publication also saw the ONS change its official measure of inflation away from CPI to include housing costs, with CPIH now the key statistic. In February, CPIH was also 2.3 per cent, up from 1.9 per cent in January. This was the largest month-on-month rise since September 2011.

Both the CPI and the CPIH figures represent the highest either measure has been since September 2013. The pound rose higher in response to the move, up 0.8 per cent on the day to $1.247.

But while the inflation figure has surged past the BoE's long-desired target, expectations for monetary policy reaction remain limited. Last week's Monetary Policy Committee (MPC) meeting yielded little insight on any future rates moves - with statements suggesting interest rates are as likely to go down as up. The latest inflation figure is unlikely to change that stance, given only one out of nine members voted for a tightening of policy.

Fuel costs were the main contributor to February's sharp inflation rise, the Office for National Statistics (ONS) said, but food prices also increased by 0.3 per cent - the first positive rise in 31 months as sterling weakness kicked in.

Transport and fuels costs rose 1.2 per cent between January and February compared to a 1 per cent fall for the same period in the previous year. The cost of purchasing cars also increased.

A similar, but smaller weighted, impact was seen from consumer goods such as personal computers. The cost of such products rose 2.3 per cent, having fallen 5.1 per cent between the two months in 2016.

The inclusion of housing costs this month had a "negligible" impact on overall inflation, the ONS said. 

Despite the surge, economists remained sanguine about the longer-term impact. Samuel Tombs of Pantheon Macroeconomics said he continued to believe inflation would peak at 3.5 per cent this year.

He said retailers' expectations on price rises could see 'core goods inflation' rise to 2.5 per cent, up from 0.8 per cent in this reading.

He added: "This rise would boost the headline rate by a further 0.5 percentage points. Food inflation also will continue to pick up in response to the jump in import prices, while services inflation will edge higher as firms pass on hefty increases in non-wage labour costs to consumers."

Ruth Gregory, UK economist at Capital Economics, said the rise in core inflation meant both economists and BoE expectations may have been too conservative.