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CPI inflation nudges up to 2.8%

Inflation crept higher between January and February, hitting 2.8 per cent as households forked out more for rising energy bills and the weak pound made imported goods more expensive.

The official consumer prices index rose from 2.7 per cent the month before to end a run of four months in which annual price rises had remained level, according to the Office for National Statistics.

The rise means that inflation is now even further above the Bank of England's notional 2.0 per cent target and economists are warning inflation could hit 3.5 per cent by the summer.

'Housing and household services' costs rose 0.5 per cent in the month, compared to a 0.3 per cent fall last year. Most of that came from rises in gas and electricity bills this February.

Other upward contributions came from transport costs, which rose 1.2 per cent in the month compared to a smaller 0.6 per cent rise last year. Within that rise, air fares rose by 9.2 per cent this year compared to a 1.6 per cent fall a year ago.

Petrol prices rose by 4.0p per litre compared to 1.9p last year and diesel rose by 3.7p compared to 1.4p last year.

Elsewhere, faster rising prices of games, toys and hobbies pushed the index up. The only good news for households was that food prices rose less quickly during the month, at 0.7 per cent, than last, while alcohol and tobacco prices fell.

A rise in inflation this month had been predicted following a fall in the value of the pound since the turn of the year. Weaker sterling makes the price of items in other currencies more expensive for UK buyers.

Vicky Redwood from Capital Economics said: 'Energy prices drove the rise, as the last of the recently announced utility price hikes took effect.

'Inflation looks likely to rise further to a peak of about 3.5 per cent over the summer, driven in part by rising food and petrol prices. And while it should ease back thereafter, the rise in import prices likely to result from the recent fall in the pound could slow that fall.'

Inflation has remained stubbornly above the 2 per cent goal set by the Government since the financial crisis, but there is mounting speculation that George Osborne will overhaul the Bank of England's remit in this week's Budget.

The Bank might be asked to foster economic stability, or be offered more room to hit the existing inflation target over a longer period.

The Bank has already tolerated above-target inflation by keeping rates at rock bottom and launching quantitative easing in its efforts to boost the economy. It also warned last month that inflation will rise higher and is not set to return to around 2 per cent for three years.

Economists said today's figures would probably not reduce the chances that the Bank will sooner or later pump more money into Britain's economy.

'What does it mean for the Bank of England? Not a lot. I don't think high inflation will act as a deterrent to their desire to do something else if they want to,' said Peter Dixon, an economist at Commerzbank. 'You very much get the sense that they are more interested in growth than they are in inflation at the current time.'

Source : Ed Monk - ThisIsMoney.co.uk
www.thisismoney.co.uk/money/news/article-2295629/Inflation-rise-2-8-weak-pound-makes-imports-pricey.html

19 March 2013
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