• CPI inflation fell to 0.4% in February, down from 0.7% in January
• The cost of clothing and footwear has continued to exert downward pressure
• Rising costs of petrol and diesel have only made a minor impact
Danni Hewson, financial analyst at AJ Bell, comments:
“Looking at today’s figures you’d be forgiven for wondering why there has been such concern about rising inflation. Lockdown three has dented seasonal clothing sales at a time we traditionally see prices rise. The cost of toys and computer games have fallen as have second-hand cars and public transport.
“But these falls must be put into context. Shops are still shut, children had yet to return to school and many workers continue to do their jobs from home. It’s impossible to compare with what’s normally expected. The economy has been distorted and many of the measures the ONS usually looks at have been missing.
“Trying to quantify what will happen when lockdown ends is rather like trying to read tea leaves. But February’s figures do raise some red flags and suggest inflationary pressures may be brewing. Creeping commodity prices are beginning to be felt by the consumer. Motor fuels saw a 0.11% hike and housing costs like water and electricity were up 0.1%.
“Add to that strong wage growth figures, pent up demand and savings for those lucky enough to have missed out on the worst effects of the pandemic and these figures are likely to be the low point. Few doubt the Bank of England’s belief that rising inflation is inescapable in the short term and investors and savers should be prepared.
“Longer term, there is an argument to be made that rising unemployment and huge government debt mountains will help balance the scales. Those anticipated deflationary pressures should provide headroom to leave interest rates low, for now.”