Falling petrol prices sees inflation ease

Inflation dropped back to a seven-month low of 2.7 per cent in February, largely due to falling petrol prices and a slower rise in the cost of food, according to latest data released today by the Office of National Statistics.

Though lower than the Bank of England had forecast, some anaylsts do not expect it to discourage the Monetary Policy Committee (MPC) from hiking interest rates in May.

There had been speculation it could raise rates at its meeting in May and this may still hold true as the MPC aims to curb the inflationary effects of domestic pressures.

Howard Archer, chief economic advisor to the EY ITEM Club said: “Consumer Price Index (CPI) inflation slowed from 3.0 per cent in January to 2.7 per cent in February, its lowest rate since July 2017. The slowdown was largely due to weaker core inflation, which cooled to a seven-month low of 2.4 per cent, as strong base effects, related to unusual seasonal movements in clothing prices at the beginning of last year, exerted a significant drag. Base effects also played a role in weaker pressures from the petrol category, with pump prices flat this year having risen by 1.1 per cent last February.

“We expect inflation to tread water for the next few months before a renewed shift downwards in the summer. Today’s producer prices data suggests that the impact of the 2016 sterling depreciation is continuing to fade further along the supply chain, while strong base effects will increasingly come into play as we move through the year. As a result, we expect the CPI measure to drop back to the 2 per cent target by early-2019.

“Today’s outturn was below the Bank of England’s forecast (2.9 per cent) but this should make little difference to the monetary policy outlook and we expect this week’s meeting to prepare the ground for the MPC to hike rates again in May.”