Headline inflation rate climbs to 2.3 per cent

Inflation crept higher last month for the first time since September, according to official figures released hours before the Budget.

Inflation crept higher last month for the first time since September, according to official figures released hours before the Budget.

The pick-up, although keeping inflation well below target, underlined the demands by business for a fiscal package that would not put any further upward pressure on interest rates.

Headline inflation climbed to 2.3 per cent in February from 2.0 per cent, while the target measure, excluding mortgage interest payments, rose from 2.1 to 2.2 per cent.

However, the hope that the spread of online shopping could trim inflation in future was boosted by the announcement from the Office for National Statistics that it has now included in the Retail Price Index for the first time toys and books bought over the internet. This will have little immediate impact, but the pilot project is likely to be extended in future.

"It is obviously a step in the right direction. More and more goods in the RPI will be affected by internet competition," said David Owen of Dresdner Kleinwort Benson.

He estimated that the internet could knock at a minimum 2 per cent off the level of consumer prices within a couple of years, with a significant impact when consumer purchasing online started to take off.

The main upward influence on the headline inflation rate last month was January's increase in interest rates, passed on by mortgage lenders in February. In addition, reductions in loan rates last year dropped out of the 12-month comparison. Housing alone added nearly 0.3 percentage points to yesterday's figure.

Mortgage costs will also put upward pressure on headline inflation in the next month or two, with a further interest rate increase and the abolition of mortgage interest relief from 1 April. But measures announced in yesterday's Budget will not affect the datauntil April.

There were smaller upward inflation pressures in February from clothing, tobacco, leisure goods and services.

Small downward effects were due mainly to cheaper seasonal foods. Food prices fell 2.1 per cent in the year to February, the lowest figure for the category since June 1959.

The prices of household goods continued to fall, with their annual decline of 1.2 per cent the fastest since March 1960. However, the drops in the price of clothing and footwear have retreated slightly from their earlier record-breaking pace.

In the annual updating of the "basket" of goods and services included in the RPI, luncheon meat and custard powder are to be replaced by broccoli and pre-packed salads. Take-away pizzas also make their first appearance.