UK Inflation Rise in February 2023

According to official data released by the Office for National Statistics (ONS) on March 22, 2023, UK inflation increased in February for the first time in six months, which has put the Bank of England in a difficult position regarding interest rates. The Consumer Prices Index (CPI) rose by 10.4% in the 12 months to February 2023, up from 10.1% in January, marking the first increase since October 2022. The core inflation rate, which excludes volatile items like food, energy, alcohol, and tobacco, increased from 5.8% in January to 6.2% in February.

The rise in inflation was mainly driven by a surge in alcohol prices in pubs and restaurants, along with some salad and vegetable produce experiencing shortages and rationing due to bad weather. However, this increase was partially offset by the continued decline in fuel prices. The annual inflation rate for restaurants and hotels was 12.1% in February, the highest rate since July 1991, due to an increase in restaurant and cafe prices, which rose by 11.4% in February.

The increase in food and non-alcoholic beverage prices was the highest in over 45 years, with vegetables experiencing the largest upward effect due to shortages of salad produce and other vegetables caused by bad weather in southern Europe and Africa, as well as higher electricity prices on produce grown out of season in greenhouses in the UK and northern Europe.

In contrast, the annual inflation rate for transport eased slightly to 3.1% in February, the lowest rate since February 2021, down from the recent peak of 15.2% in June 2022. On a monthly basis, CPI rose by 1.1% in February 2023, with the largest contributions coming from restaurants and cafes, food, and clothing.

Suren Thiru, Economies Director for ICAEW, cautioned against raising interest rates given the current fragility in financial markets and the potential for further market turbulence. Thiru suggested that inflation is expected to resume its downward trajectory in March due to the strong base effect from the comparison to March 2022 when fuel prices skyrocketed following Russia's invasion of Ukraine.

The report summarised the main points:

• The Consumer Prices Index including owner occupiers' housing costs (CPIH) rose by 9.2% in the 12 months to February 2023, up from 8.8% in January.

• The largest upward contributions to the annual CPIH inflation rate in February 2023 came from housing and household services (principally from electricity, gas, and other fuels), and food and non-alcoholic beverages.

• On a monthly basis, CPIH rose by 1.0% in February ICAEW 2023, compared with a rise of 0.7% in February 2022.

• The Consumer Prices Index (CPI) rose by 10.4% in the 12 months to February 2023, up from 10.1% in January.

• On a monthly basis, CPI rose by 1.1% in February 2023, compared with a rise of 0.8% in February 2022.

• The largest upward contributions to the monthly change in both the CPIH and CPI rates came from restaurants and cafes, food, and clothing, partially offset by downward contributions from recreational and cultural goods and services (particularly recording media), and motor fuels.

• The estimates for February 2023 have been constructed using updated expenditure weights; this is the second and final weights update for 2023.

• This release is the first publication to include expanded data on rail fares as part of our project to transform consumer price statistics.

Source: ONS Consumer price inflation