LONDON (Dow Jones)–U.K. consumer price inflation accelerated on an annual basis in February, the Office for National Statistics said Tuesday, surprising economists who had expected a sharp decline.
February’s 3.2% annual inflation means Bank of England Governor Mervyn King will have to write another letter of explanation to the treasury for inflation being more than one percentage point above the 2.0% target.
The consumer price index rose 0.9% on the month and 3.2% on the year after falling 0.7% on the month and increasing 3.0% on the year in January.
Economists had expected consumer prices to rise 0.2% on the month and 2.5% on the year as part of a rapid decline in inflationary pressures amid a sharp economic downturn. In fact, February’s annual 3.2% CPI increase is the highest since November 2008.
The higher-than-expected CPI data could prove troubling to the Bank of England, which has slashed interest rates and embarked on quantitative easing in a bid to boost the economy. Those policies had been based on an expectation that inflation would fall rapidly to below the target.
Underlining that point, the inflationary pressures in the CPI were broad-based. Most categories revealed solid price pressures, with the biggest increases coming from food and non-alcoholic beverages, recreation and culture, and transport costs as petrol prices rose.
ONS officials said businesses had noted the impact of exchange-rate weakness and import prices in pushing prices higher. Price pressures accelerated broadly on the year, the ONS said.
Core inflation pressures also intensified. Stripping out food, energy, alcoholic beverages and tobacco, core CPI rose 0.7% month and 1.6% on the year. Economists had expected a 1.2% annual rise.
Meanwhile, the retail price index, the broadest measure of price pressures, was up 0.6% on the month and flat on the year. In January, the RPI was down 1.3% on the month but up 0.1% on the year.
The annual 0.0% RPI rate was the lowest since 1960, ONS officials said.
Data are also released on the NS website: http://www.statistics.gov.uk/
