Belfast Telegraph

Inflation's upward trend slows but interest rate rises still on the cards

Trend: Esmond Birnie
Trend: Esmond Birnie

By Ben Woods

Inflation was lower than expected in February, according to new figures, but "any substantial growth in real living standards is still some way off" said Ulster University's senior economist.

Esmond Birnie said the CPI (Consumer Price Index) increase of 2.7%, down from 3% the previous month, could be attributed to "less rapid growth in food prices, accommodation and some reductions in motor fuels".

The outcome was lower than the 2.8% predicted by economists and marked the first fall in inflation since December last year.

It eased the pressure on the Bank of England, which is expected to raise interest rates beyond 0.5% in May.

Mr Birnie said the figures "suggest we are seeing a trend decline towards the Bank of England's 2% target".

He continued: "This does make any increase in interest rates during the next few months less likely.

"Whilst we are moving back towards a position where there will be growth in real wages, that is wages adjusted for inflation, any substantial growth in real living standards is still some way off."

Phil Gooding, ONS (Office for National Statistics) head of CPI, said: "A small fall in petrol prices, alongside food prices rising more slowly than last year, helped pull down inflation, as many of the early 2017 price increases due to the previous depreciation of the pound have started to work through the system. Hotel prices also fell and the cost of ferry tickets rose more slowly than last year, when prices were collected on Valentine's Day when many people could have been taking mini-breaks."

Transport prices dragged on the cost of living in February, securing a smaller month-on-month rise of 0.5% in contrast to 1.2% last year.

Petrol prices dropped by 0.2p per litre to 120.8 per litre on the month, while diesel slipped by 0.1p per litre to 124.4p per litre.

Food prices' downward pressure, lifting 0.1% between January and February in contrast to a 0.8% rise the year before, was partly down to a shortage of salad and vegetables last year when bad weather hit crops in southern Mediterranean countries, the ONS said.

The main upward pressure on the cost of living came from clothing and footwear prices, which rose by 1.7% on the month, compared to 1.2% in 2017, as women's shoes became more expensive.

Economists and the Bank believe inflation's upward march has run its course and will start to unwind over the coming months.

The Bank is expected to keep interest rates on hold at 0.5% tomorrow, but the meeting will be watched closely amid expectations over another hike in May.

Governor Mark Carney has already warned borrowers that rates will need to rise "somewhat earlier and by a somewhat greater degree" to get inflation back to the Bank's 2% target after stronger-than-expected economic growth.

Belfast Telegraph