Inflation Rises

21/03/2017

The Office for National Statistics (ONS) has revealed UK inflation, as measured by The Consumer Price Index (CPI), climbed to 2.3% in February – above the Bank of England’s 2% target for the first time since late 2013, reports Investment Week.

Rising transport costs, particularly for fuel, were the main contributors to the increase, while food prices also increased by 0.3% after 31 months of consecutive falls. The ONS also reported a 19.1% rise in raw material prices, down from 20.1% last month, and a 6.2% rise in UK house prices, an increase from 5.7% the previous month.

Last October, Bank of England governor Mark Carney said he was willing to let inflation temporarily overshoot the 2% target in order to boost economic growth and reduce unemployment.

The pound had been rising against the US dollar ahead of the inflation data and soared higher after the announcement to gain 0.9%, trading around $1.24660.

James Klempster, head of investment management at Momentum UK, said the pound is to blame: “The weakness in sterling that occurred in the aftermath of the EU vote continued to make itself felt in consumer prices and housing costs throughout February.”

Aberdeen Asset Management’s investment manager James Athey said the move higher causes problems for the Bank of England but does not expect an imminent reaction: “Today’s inflation print is just going to compound the Bank of England’s headache. Their forecasts predict a slowdown in coming months so the last thing that they want to deal with is inflation being above target.

Viktor Nossek, director of research at ETF provider WisdomTree in Europe, said there is no need for investors to panic about runaway prices: “Inflation is not returning to the highs seen during the 1990s – indeed the coming months are likely to represent a peak for CPI if energy prices continue to trend lower, and with signs that economic activity could weaken in the near-term amid a potential slowdown in the UK’s dominant services sector.”

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