Inflation edges in the right direction – but too slow to inspire action
The ONS has released inflation figures for February: Consumer price inflation, UK – Office for National Statistics
Susannah Streeter, head of money and markets, Hargreaves Lansdown: “Inflation in the UK has taken another welcome step towards target, but interest rate cuts remain elusively distant. The drop was widely expected but was slightly less than forecast, with prices at the pumps offsetting a slowdown in food price hikes.
Although consumer prices are heading in the right direction, it’s not just the headline rate which determines Bank of England action. Policymakers scan other data, and the snapshot of stubborn wage growth out this week continues to be a concern. Unemployment may have risen, but the labour market figures are considered unreliable, and more people out of work isn’t yet translating into a sharp slowdown in wage increases, as there’s still a fight for talent in big pockets of the economy.
Although core inflation, which strips out volatile food and fuel prices is also cooling, slowing to 4.2%, the worry is that employers could pass on higher wage bills in the form of higher prices in the months to come. It means the interest rate may stay at a painful level for even longer than earlier forecasts, with August or September being increasingly pencilled in.
Other central banks, particularly the Federal Reserve in the United States, are taking a cautious stance, staying committed to the fight against inflation. Fed chair Jerome Powell has warned that interest rates may have to linger for longer, with confidence ebbing away that the price spiral is being brought under control.”
