Inflation Surges in the UK


Consumer price inflation rose sharply to a nine month high in February as statisticians changed the way they accounted for increases in gas and electricity tariffs, official data showed on Tuesday.

The Office for National Statistics said the consumer prices index rose to 2.5 per cent in the year to February, in line with analysts’ expectations but above January’s 2.2 per cent reading and further above the Bank of England’s 2 per cent target.

The change was largely because the ONS has begun recording increases in gas and electricity prices in full at the time they are introduced, rather than phasing in changes over four months as they did previously.
Yet the reading underlines the challenge facing policymakers who must reconcile ongoing market turmoil and the risk of a sharp economic downturn with rising inflationary pressures.

Economists took some comfort from a lower rate of core inflation - excluding food, tobacco and energy prices - which slowed to 1.2 per cent. The components of inflation that the Bank can control (by dampening or boosting demand) are showing slowing inflation,” said Alan Clarke, economist at BNP Paribas.

However, higher oil prices and higher import costs resulting from a weaker pound are expected to drive inflation further above target over the coming months. Policymakers will also be worried that rising inflation expectations and higher prices charged by producers could make it harder to return inflation to target over time.

Despite a let-up in overall food price inflation last month , prices for milk, cheese and eggs were 17.6 per cent higher than a year earlier, the biggest annual increase in more than a decade.
Inflation on the retail prices index was unchanged at 4.1 per cent, held in check by house depreciation and by smaller rises in mortgage interest payments.


TradingEconomics.com, Financial Times
3/18/2008 6:54:09 AM