This morning the ONS published inflation statistics for February 2017. Let’s pick out three key takeaways from today’s inflation release:
1. CPI overshoots the Bank of England’s 2% target
CPI inflation jumped to 2.3% in the year to February, its highest rate since September 2013. While most analysts expected CPI to come in at around the 2% mark, this rate of increase surprised to the upside. And there’s more to come over the course of the year as the sterling depreciation has yet to fully filter into CPI.
The minutes from the BoE’s March minutes saw an increase in hawkish commentary from MPC members. While the MPC has signalled its willingness to see through what they deem as a temporary spike in inflation, if CPI continues to overshoot expectations, we might see more MPC members follow dissenter Kirsten Forbes into voting for an interest rate hike.
2. Fuel prices the culprit…again
Nothing new to see here. The increase in fuel prices for transport contributed almost half of the 2.3% rise in CPI, while the only component making a (very slight) negative contribution was clothing, likely down to seasonal discounting. The only significant change from January was that food prices increased for the first time since April 2014, reflecting the end of the supermarket price wars and higher prices for imported food.
3. No relief in sight for manufacturers’ input costs
Producer price inflation continued its sharp upward trajectory but input prices eased somewhat from the 20.5% increase in January to 19.1% in the year to February. Nevertheless, that was still the second faster rate of annual growth since September 2008, with the increase in crude oil prices responsible for 47% of the rise in input prices over the past 12 months.
Manufacturers continued to put prices up in response. Output prices increased by 3.7% in the year to February, the eighth consecutive annual increase and the highest rate since December 2011. This is in line with the results from our latest Manufacturing Outlook, showing that manufacturers have been putting up prices at the start of 2017 but not by enough to relieve pressure on profit margins.