Fresh inflation fears as target figure rises


Economics Editor

In an embarrassing reverse the Government's target measure of inflation increased in February, even though headline inflation fell to its lowest for 15 months.

The disappointing rise in underlying inflation, along with a jump in manufacturers' optimism reported by the Confederation of British Industry this morning, will make faint hearts in the City play down hopes of another reduction in base rates. However, most analysts said yesterday that the inflation outlook remained good.

Falling beef prices will be one contributory factor. On the cautious assumption that beef drops by a fifth in price, it will reduce the annual rise in food prices by one percentage point, and headline inflation by 0.1 points.

Other downward influences on inflation are the recently announced mortgage rate reductions, and continuing petrol and supermarket price wars.

The headline inflation rate fell from 2.9 per cent to 2.7 per cent in February, the lowest since November 1994. The annual increase in the RPI less mortgage interest relief rose from 2.8 to 2.9 per cent, compared with its 2.5 per cent target.

Lower mortgages made the biggest contribution to the decline in the headline rate, as home loan rates climbed last February. The mortgage effect will help the retail price index until at least April. Higher house prices offset some of the effect on total housing costs last month.

Motoring costs also made a significant contribution thanks to petrol on average 1.5p-2p a litre cheaper than in January.

The biggest upward pressures on inflation last month came from tobacco and food. Food prices climbed 4.5 per cent in the year to February. Non- seasonal food price inflation reached 4.9 per cent, its highest since July 1991.

Higher packaging costs due to pulp and metal costs, weather-related shortages and higher prices of raw materials such as flour, sugar and beans for baking lay behind these rises. Pork and bacon prices have been rising for several months as a result of a piglet shortage. More expensive packaging also accounted for increases in the price of personal goods such as cosmetics and toiletries.

Economists were divided about the significance of last year's high raw materials costs being passed through to retail prices at last. Ian Shepherdson at HSBC Markets said: ''This is nothing to worry about unduly. There is no sign of across-the-board pressure.'' But Kevin Darlington at Hoare Govett said: ''High street demand should be sufficiently buoyant to enable retailers to push through price increases this year to restore margins.''

The CBI's latest monthly survey of industrial trends was equally mixed. The balance of firms reporting higher rather than lower orders this month was the weakest since the end of 1993, at minus 15 per cent. The minus 5 per cent balance for export orders was the weakest for nearly two years.

In addition, the build up of stocks continued, with a balance of 20 per cent of firms reporting more than adequate stocks compared with 16 per cent in February.

The balance of firms expecting to raise prices fell to 13 per cent, the lowest since October.

On the other hand, in a surge of optimism not reflected in recent conditions, manufacturers' output expectations returned to their highest level since last May. A balance of 24 per cent expect output to grow during the next four months.

Comment, page 17

Pro-Russia rebels guard a train containing the bodies of victims of the Malaysia Airlines flight MH 17 crash in Torez, Ukraine
Life and Style
Child's play: letting young people roam outdoors directly contradicts the current climate
lifeHow much independence should children have?
Arts and Entertainment
Tycoons' text: Warren Buffett and Bill Gates both cite John Brookes' 'Business Adventures' as their favourite book
booksFind out why America's richest men are reading John Brookes
Sign here, please: Magna Carta Island
propertyYours for a cool £4m
The Commonwealth flag flies outside Westminster Abbey in central London
Arts and Entertainment
Struggling actors who scrape a living working in repertory theatres should get paid a 'living wage', Sir Ian McKellen has claimed
Skye McCole Bartusiak's mother said she didn't use drink or drugs
peopleActress was known for role in Mel Gibson film The Patriot
Arts and Entertainment
filmThe Rock to play DC character in superhero film
Arts and Entertainment
Damon Albarn is starting work on a new West End musical
artsStar's 'leftfield experimental opera' is turning mainstream
ebookA unique anthology of reporting and analysis of a crucial period of history
Life and Style
Paul and his father
artsPaul Carter wants to play his own father in the film of his memoirs
Ben Stokes trudges off after his latest batting failure for England as Ishant Sharma celebrates one of his seven wickets
Arts and Entertainment
Members of the public are invited to submit their 'sexcapades' to Russell T Davies' new series Tofu
Sky's Colin Brazier rummages through an MH17 victim's belongings live on air
Arts and Entertainment
Keira Knightley and Benedict Cumberbatch star in the Alan Turing biopic The Imitation Game
arts + ents'The Imitation Game' stars Benedict Cumberbatch and Keira Knightley
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Training Programme Manager (Learning and Development)-London

£28000 - £32000 per annum + benefits: Ashdown Group: Training Programme Manage...

Training/Learning and Development Coordinator -London

£28000 - £32000 per annum: Ashdown Group: Training/Learning and Development Co...

Business Analyst (Systems/ Incident Analyst)

£40000 - £50000 Per Annum: Clearwater People Solutions Ltd: Business Analyst r...

BA/PM - Client Data

£500 - £550 per day: Orgtel: BA/PM - Client Data London (Greater)

Day In a Page

Some are reformed drug addicts. Some are single mums. All are on benefits. But now these so-called 'scroungers’ are fighting back

The 'scroungers’ fight back

The welfare claimants battling to alter stereotypes
Amazing video shows Nasa 'flame extinguishment experiment' in action

Fireballs in space

Amazing video shows Nasa's 'flame extinguishment experiment' in action
A Bible for billionaires

A Bible for billionaires

Find out why America's richest men are reading John Brookes
Paranoid parenting is on the rise - and our children are suffering because of it

Paranoid parenting is on the rise

And our children are suffering because of it
For sale: Island where the Magna Carta was sealed

Magna Carta Island goes on sale

Yours for a cool £4m
Phone hacking scandal special report: The slide into crime at the 'News of the World'

The hacker's tale: the slide into crime at the 'News of the World'

Glenn Mulcaire was jailed for six months for intercepting phone messages. James Hanning tells his story in a new book. This is an extract
We flinch, but there are degrees of paedophilia

We flinch, but there are degrees of paedophilia

Child abusers are not all the same, yet the idea of treating them differently in relation to the severity of their crimes has somehow become controversial
The truth about conspiracy theories is that some require considering

The truth about conspiracy theories is that some require considering

For instance, did Isis kill the Israeli teenagers to trigger a war, asks Patrick Cockburn
Alistair Carmichael: 'The UK as a whole is greater than the sum of its parts'

Alistair Carmichael: 'The UK as a whole is greater than the sum of its parts'

Meet the man who doesn't want to go down in history as the country's last Scottish Secretary
Legoland Windsor's master model-makers reveal the tricks of their trade (including how to stop the kids wrecking your Eiffel Tower)

Meet the people who play with Lego for a living

They are the master builders: Lego's crack team of model-makers, who have just glued down the last of 650,000 bricks as they recreate Paris in Windsor. Susie Mesure goes behind the scenes
The 20 best days out for the summer holidays: From Spitfires to summer ferry sailings

20 best days out for the summer holidays

From summer ferry sailings in Tyne and Wear and adventure days at Bear Grylls Survival Academy to Spitfires at the Imperial War Museum Duxford and bog-snorkelling at the World Alternative Games...
Open-air theatres: If all the world is a stage, then everyone gets in on the act

All the wood’s a stage

Open-air productions are the cue for better box-office receipts, new audiences, more interesting artistic challenges – and a picnic
Rand Paul is a Republican with an eye on the world

Rupert Cornwell: A Republican with an eye on the world

Rand Paul is laying out his presidential stall by taking on his party's disastrous record on foreign policy
Self-preservation society: Pickles are moving from the side of your plate to become the star dish

Self-preservation society

Pickles are moving from the side of your plate to become the star dish
Generation gap opens a career sinkhole

Britons live ever longer, but still society persists in glorifying youth

We are living longer but considered 'past it' younger, the reshuffle suggests. There may be trouble ahead, says DJ Taylor