LONDON – Base effects played a part again as UK consumer prices inched lower again in February as the Office for National Statistics (ONS) rejigs the basket of goods and services.
Headline annual CPI rose 3.4% in February, a tenth higher than the median estimate but slipping from 4.0% in January. On the month, prices grew by 0.6%, rebounding from the 0.6% fall last month albeit lower than the 0.7% forecast.
Core CPI (which excludes energy, food, alcohol, and tobacco) rose 4.5% y/y, missing the 4.6% estimate and below 5.1% last. Statisticians reported that annually CPI goods fell to 1.1 from 1.8%, while the services rate slipped to 6.1% from 6.5%.
Grant Fitzner, ONS chief economist said “Inflation eased in February to its lowest rate for nearly two and half years.
“Food prices were the main driver of the fall, with prices almost unchanged this year compared with a large rise last year, while restaurant and café price rises also slowed.
“These falls were only partially offset by price rises at the pump and a further increase in rental costs.”
Experts noted that food prices peaked at 19.2% in March and have subsequently dropped to ~5% currently.
Factory gate prices
Annual PPI output prices reversed much of January’s drop. In the 12-months to February, output prices rose 0.4% up from a revised 0.3% fall and the 0.1% drop forecast. On the month, prices grew 0.3% from an upwardly revised flat print.
PPI input prices declined 2.7% y/y in line with estimates and a tenth higher than last month’s revised retreat of 2.8%. On the month, input prices fell 0.4% compared to a 0.2% predicted rise and the upwardly adjusted drop of 0.1% last prior.
Statisticians said that this was the ninth consecutive month the annual rate had been negative.
Both input and output price levels have been relatively stable since mid-2022 but remain substantially higher than their 2021 levels.
Future path for policy
Sanjay Raja, Deutsche Bank’s chief UK economist predicted that consumer prices were likely to fall to around the Bank of England’s 2% target in April, dragged lower by falling dual fuel bills. “We expect CPI to remain broadly around the bank’s 2% mandate for much of the year past March (averaging around 2.1% to 2.2% y/y). This should allow the Monetary Policy Committee (MPC) to comfortably adjust the degree of restrictiveness in monetary policy from as early as Q2-24.”
Nonetheless, Paula Bejarano Carbo, an economist at the National Institute of Economic and Social Research (NIESR) said “While indicators of underlying inflationary pressures all fell on the month, they remain high, which may require the MPC to exercise caution in such monetary loosening.”
The latest BoE rate decision is set to be announced midday on Thursday.
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- Inflation at lowest level in two and a half years
- Food and hospitality put downward pressure on prices
- Petrol and rental costs partially offset the fall
- Services annual rate eased in February
- Policy rates could be lowered during Q2 - analysts
By Harry Daniels
LiveSquawk News
@harrydaniels71
20 March 2024 | 11:00 GMT
LONDON – Base effects played a part again as UK consumer prices inched lower again in February as the Office for National Statistics (ONS) rejigs the basket of goods and services.
Headline annual CPI rose 3.4% in February, a tenth higher than the median estimate but slipping from 4.0% in January. On the month, prices grew by 0.6%, rebounding from the 0.6% fall last month albeit lower than the 0.7% forecast.
Core CPI (which excludes energy, food, alcohol, and tobacco) rose 4.5% y/y, missing the 4.6% estimate and below 5.1% last. Statisticians reported that annually CPI goods fell to 1.1 from 1.8%, while the services rate slipped to 6.1% from 6.5%.
Grant Fitzner, ONS chief economist said “Inflation eased in February to its lowest rate for nearly two and half years.
“Food prices were the main driver of the fall, with prices almost unchanged this year compared with a large rise last year, while restaurant and café price rises also slowed.
“These falls were only partially offset by price rises at the pump and a further increase in rental costs.”
Experts noted that food prices peaked at 19.2% in March and have subsequently dropped to ~5% currently.
Annual PPI output prices reversed much of January’s drop. In the 12-months to February, output prices rose 0.4% up from a revised 0.3% fall and the 0.1% drop forecast. On the month, prices grew 0.3% from an upwardly revised flat print.
PPI input prices declined 2.7% y/y in line with estimates and a tenth higher than last month’s revised retreat of 2.8%. On the month, input prices fell 0.4% compared to a 0.2% predicted rise and the upwardly adjusted drop of 0.1% last prior.
Statisticians said that this was the ninth consecutive month the annual rate had been negative.
Both input and output price levels have been relatively stable since mid-2022 but remain substantially higher than their 2021 levels.
Sanjay Raja, Deutsche Bank’s chief UK economist predicted that consumer prices were likely to fall to around the Bank of England’s 2% target in April, dragged lower by falling dual fuel bills. “We expect CPI to remain broadly around the bank’s 2% mandate for much of the year past March (averaging around 2.1% to 2.2% y/y). This should allow the Monetary Policy Committee (MPC) to comfortably adjust the degree of restrictiveness in monetary policy from as early as Q2-24.”
Nonetheless, Paula Bejarano Carbo, an economist at the National Institute of Economic and Social Research (NIESR) said “While indicators of underlying inflationary pressures all fell on the month, they remain high, which may require the MPC to exercise caution in such monetary loosening.”
The latest BoE rate decision is set to be announced midday on Thursday.