Inflation smashes Bank of England's two per cent target
Tuesday, 21 March 2017 Inflation has smashed through the Bank of England’s two per cent target for the first time since November 2013 as the Office for National Statistics (ONS) changes its headline inflation measure.
Consumer price inflation (CPI), which has been the main measure of price rises since 2003, rose at an annual rate of 2.3 per cent in February, up from 1.8 per cent in January, according to the ONS.
The new measure, the catchily named consumer prices index including owner occupiers’ housing costs (CPIH), rose from two per cent in January to 2.3 per cent as well last month.
The ONS is now in the strange position of reporting two different measures of how much prices are rising in the UK.
The odd state of affairs has arisen because of flaws in the methodology for CPIH, which have meant the UK Statistics Authority has refused to grant "national statistic" status to the measure.
However, the Bank of England will continue to use CPI as its target for monetary policy, as mandated by the Treasury. This is thought to be unlikely to change before CPIH gains the stamp of approval from the Statistics Authority, with the Treasury currently having no plans to make a change.
However, the confusion is unlikely to have major policy implications given the level of the measures, with both easily above two per cent.
Rising transport costs caused by increases in the price of fuel were one of the main drivers of the headline increase in prices, the ONS said.
Meanwhile, food prices had a small upward effect on inflation for the first time since 2014.
Jonathan Athow, ONS deputy national statistician, said: “Inflation has risen to its highest rate for almost three and a half years with price increases seen across a range of items but with food and fuel having the largest impact."
British inflation last month shot past the Bank of England's 2 percent target for the first time since the end of 2013 and looks set to climb further due to the Brexit hit to the pound and rising global oil prices. David Pollard reports.