This article is from the source 'guardian' and was first published or seen on . It last changed over 40 days ago and won't be checked again for changes.

You can find the current article at its original source at http://www.theguardian.com/business/2014/mar/25/inflation-lowest-level-four-years

The article has changed 2 times. There is an RSS feed of changes available.

Version 0 Version 1
Inflation at lowest level in four years Inflation at lowest level in four years
(about 1 hour later)
A dip in petrol prices helped inflation fall to its slowest pace in more than four years last month, bringing welcome relief to households and bolstering expectations that interest rates will stay at their record low for many months to come. A dip in petrol prices helped inflation fall to its slowest level in more than four years last month, bringing welcome relief to households and bolstering expectations that interest rates will stay at their record low for many months to come.
The Office for National Statistics (ONS) said the consumer price index (CPI) rate of inflation was 1.7% in February, the lowest since October 2009 and down from 1.9% in January. That was in line with the consensus forecast in a Reuters poll of economists. The Office for National Statistics (ONS) said the consumer price index (CPI) inflation rate was 1.7% in February, down from 1.9% in January and the lowest since October 2009. That was in line with the consensus forecast in a Reuters poll of economists.
The retail price index (RPI) rate, used to set many pay deals, was 2.7% in February, slightly higher than the 2.6% forecast but down from 2.8% in January. The retail price index (RPI) rate, used to set many pay deals, was 2.7% in February, slightly higher than the 2.6% forecast, but still down from 2.8% in January.
The slowdown to well below the government-set target of 2.0% inflation will give the Bank of England more breathing space to assess the strength of the UK's recovery and judge when interest rates should rise from their record low of 0.5% – a move policymakers have suggested they will not make until well into next year, at the earliest. The slowdown to well below the government target of 2.0% will give the Bank of England more breathing space to assess the strength of the UK's recovery and judge when interest rates should rise from their record low of 0.5% – a move policymakers have suggested it will not make until well into next year at the earliest.
"Clearly below-target inflation facilitates the Bank of England keeping interest rates down at 0.5% where we believe they are highly likely to stay through 2014 and during the early months of 2015 despite the economy's improved growth and markedly reduced unemployment," said Howard Archer, economist at IHS Global Insight. "Clearly below-target inflation facilitates the Bank of England keeping interest rates down at 0.5%, where we believe they are highly likely to stay through 2014 and during the early months of 2015, despite the economy's improved growth and markedly reduced unemployment," said Howard Archer, an economist at IHS Global Insight.
The slowdown will ease pressure to householders who have grappled for years with falling real wages as pay rises have failed to keep up with rising prices. The slowdown will also ease pressure on householders who have grappled for years with falling real wages as pay rises have failed to keep up with increasing prices.
At the same time, there have been signs that pay growth is starting to pick up with average earnings up 1.4% in the three months to January, according to official data released last week. That was the fastest growth since April to June last year and narrowed the gap with inflation at 1.9%. There have been signs that pay growth is starting to pick up with average earnings up 1.4% in the three months to January, according to official data released last week. That was the fastest growth since April to June last year and narrowed the gap with inflation.
With much of the debate ahead of next May's general election centred on the cost of living, the Treasury welcomed the latest news on inflation. "Inflation has fallen to its lowest level in over four years helping households across the country. The government's long-term economic plan is working, boosting economic security for hardworking people," said a spokesman, reprising the catchphrases of chancellor George Osborne's budget last week. With much of the debate ahead of next May's general election centred on the cost of living, the Treasury welcomed the latest inflation news. "Inflation has fallen to its lowest level in over four years helping households across the country. The government's long-term economic plan is working, boosting economic security for hardworking people," a spokesman said, reprising the catchphrases of George Osborne's budget last week.
But Labour focused on people's deteriorating household finances over recent years. "This fall in the inflation rate is welcome, but the squeeze continues as prices are still rising faster than wages. Working people facing this cost-of-living crisis are on average £1,600 a year worse off since David Cameron came to office," said Catherine McKinnell MP, the shadow Treasury minister. Labour focused on deteriorating household finances over recent years. "This fall in the inflation rate is welcome, but the squeeze continues as prices are still rising faster than wages. Working people facing this cost-of-living crisis are on average £1,600 a year worse off since David Cameron came to office," said Catherine McKinnell MP, the shadow Treasury minister.
The ONS said the main downward pressure on CPI in February came from motor fuels, with petrol prices down by 0.8p per litre between January and February this year compared with a rise of 4p a year ago. Diesel prices also fell this year and rose a year earlier. There was also some help bringing inflation down from gas and electricity bills and from clothing prices, which rose by less than in 2013. The ONS said the main downward pressure on the CPI in February came from motor fuels, with petrol prices down by 0.8p a litre between January and February this year, compared with a rise of 4p a year ago. Diesel prices also fell this year and rose a year earlier. There was also some help from gas and electricity bills and clothing prices, which rose by less than in 2013.
The core rate of inflation, which excludes volatile items like food and energy, picked up to 1.7% in February from 1.6% in January. But separate data on producer prices, also known as factory gate prices, showed a rise of just 0.5% on the year, also the slowest pace of inflation since October 2009 and softer than forecasts for 0.7%. Their input prices, or costs, were down 5.7% on the year, even faster deflation than the forecast for a 5.3% fall and again the weakest price pressure for more than four years. The core rate of inflation, which excludes volatile items like food and energy, rose to 1.7% in February from 1.6% in January. Separate data on producer prices, also known as factory gate prices, showed a rise of just 0.5% on the year, also the slowest pace of inflation since October 2009 and softer than forecasts for 0.7%. Their input prices, or costs, were down 5.7% on the year, more than the 5.3% forecast and again the weakest price pressure for more than four years.
Chris Williamson, economist at data specialists Markit, said the key to how long the BoE can leave rates at their record low would be the path of pay growth. "The potential for wages to start rising strongly should not be underestimated, given the speed with which the labour market is improving." Chris Williamson, an economist at the data specialists Markit, said the key factor determining how long the Bank can leave interest rates at their record low would be pay growth. "The potential for wages to start rising strongly should not be underestimated, given the speed with which the labour market is improving," he said.
Economists are divided over whether inflation will push back up above its target this year and over when the Bank of England will tighten borrowing costs after five years of ultra-loose monetary policy. Economists are divided over whether inflation will push back up above its target this year and over when the Bank will tighten borrowing costs after five years of ultra-loose monetary policy.
Christian Schulz, senior economist at the German bank Berenberg noted the rise in core inflation and potential pressure from housing-related products like furniture as the property markets heats up. The ONS said on Tuesday that house price inflaiton was 6.8% in January, led by London, where prices rose 13.2% on the year. Schulz also said slack in the economy was being eroded fast. Christian Schulz, senior economist at the German bank Berenberg, noted the rise in core inflation and potential pressure from housing-related products like furniture as the property market heats up. The ONS said on Tuesday that house price inflation was 6.8% in January, led by London, where prices rose 13.2% on the year. Schulz also said slack in the economy was being eroded fast.
"Unemployment is falling, vacancies are rising and firms report high and rising recruitment difficulties. That should push inflation back up to, and possible a touch above the 2% inflation target by the end of 2015," he said. "Unemployment is falling, vacancies are rising and firms report high and rising recruitment difficulties. That should push inflation back up to, and possible a touch above, the 2% inflation target by the end of 2015," he said.
"The lack of headline inflationary pressures gives the BoE a bit of room to delay a first hike until next year. We expect the first 25 basis point rate hike in the first quarter of next year followed by three more 25bp increases during 2015.""The lack of headline inflationary pressures gives the BoE a bit of room to delay a first hike until next year. We expect the first 25 basis point rate hike in the first quarter of next year followed by three more 25bp increases during 2015."