Please see the below article from Evelyn Partners providing an update on the February UK CPI. Received this morning 22/03/2023.
What happened?
UK February annual headline CPI inflation was reported at 10.4% (Reuters consensus: 9.9%), up from 10.1% in January but down from a recent peak of 11.1% in October. In monthly terms, CPI was up 1.1% (consensus: +0.6%), compared to a fall of -0.6% in January.
February annual core inflation (excluding food, energy, alcohol, and tobacco) was 6.2% (consensus: 5.7%), versus 5.8% in January. In monthly terms, core CPI increased 1.2% (consensus: 0.8%), compared to a fall of -0.9% in January.
What does it mean?
Inflation appears to have re-accelerated in February. In monthly terms, headline CPI accelerated by a sharp 1.1%, while the headline annualised rate has increased slightly (shielded to a certain extent by the base effect). This stickiness has been especially prevalent in core inflation which gained 1.2% on the month, it’s largest month-on-month acceleration since 1993.
Looking at the contribution components to inflation, a large part of February’s acceleration can be attributed to restaurants and hotels, with the category increasing at its fastest annual rate since 1991. Food and non-alcoholic beverages also contributed heavily with their annual rate the highest for over 45 years, vegetables were a notable mention, with a poor crop yield in Europe and Africa reducing supply.
Tightness in the labour market continues to put pressure on wage growth. The risk is that rising wages will feed through to inflation, causing it to become entrenched. The latest data shows that underlying wage rates (ex-bonuses) have re-accelerated to 6.5% on a 3-month moving average, near its highest rate since the summer of 2021.
Bottom Line
With the inflation re-accelerating in February, we’re still a long way off the Office for Budget Responsibility’s (OBR) forecasts of inflation reaching 2.9% by the end of 2023. While inflation continues to remain elevated, the Bank of England (BOE) have a fine line to tread between restoring price stability and limiting additional pressure on the banking sector when they vote on the next monetary policy decision tomorrow.
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Alex Clare
22/03/2023