Inflation falls back to 3%
The annual rate of inflation was dragged down by lower price rises for petrol, household goods and food
Phillip Inman
@phillipinman
Tue 23 Mar 2010 14.26 EDT First published on Tue 23 Mar 2010 14.26 EDT
Lower price rises for food and household items than a year ago helped to drag the annual rate of consumer price inflation down by 0.5%. Photograph: Guardian
The cost of living tumbled last month easing Treasury fears that a sustained period of rising prices would force the Bank of England to raise interest rates before the expected election in May.
The fall of 0.5% in February from a high of 3.5% in the previous month dampened speculation that base rates would rise in the short term and damage the economy's nascent recovery.
Core inflation, which strips out volatile items such as energy and food prices, eased to 2.9% in February, from 3.1% in January.
Jonathan Loynes, chief European economist at Capital Economics, said price pressures in the UK economy "remain encouragingly subdued".
However, as Alistair Darling prepares today to deliver the final budget of this parliament, there were warnings that the figures confirmed the weakness of the UK economy.
The main industry trade bodies – the Confederation of British Industry, the British Chamber of Commerce and Institute of Directors – warned that despite factory closures and 2.6 million unemployed workers spare capacity in the economy remained a significant factor and meant underlying inflation growth would remain low.
David Kern, chief economist at the BCC, said: "The economy remains weak, businesses are still facing serious pressures, and it would be wrong for the Monetary Policy Committee to contemplate early interest rate rises."
Unions pointed out that while inflation had fallen, the Retail Prices Index used as a base for pay claims remained stubbornly high. RPIX, the measure that excludes mortgage rates, slowed from 4.6% in January to 4.2%, which is still three times the average rate of earnings growth.
The report by the Office for National Statistics (ONS) showed that the annual rate of consumer price inflation was dragged down by smaller price rises for items such as petrol, household goods and food than a year earlier, while average gas bills fell.
British Gas cut gas prices during February, triggering a round of further reductions by rivals which will feed into inflation figures in the months ahead.
Games, toys and sports equipment declined more than expected after a bumper Christmas.
The only major upward impact on inflation in February came from women's clothing, where prices rose by more than a year ago.
Inflation over the last year was maintained by a strong rise in university fees and private school costs, a boost to alcohol and tobacco prices and a surge in transport costs, which rose by more than 10%.
Petrol costs, one of the main elements in transport category, have risen steadily over recent months to nudge £1.20 a litre in some parts of London.
Secondhand car prices rose after fleet managers held back from upgrading company cars. The shortage of fleet cars denied dealers much of their supply and triggered a rise in prices.
Howard Archer, economist at IHS Global Insight, said: "It is likely that many retailers put prices up less this February than a year ago following the ending of the post-Christmas clearance sales as there was less sharp and extensive discounting in the sales in the first place."
Some economists said much of the rises in the last year were mainly the result of the sharp fall in the pound over the past 18 months, which has had the effect of pushing up the prices of imported goods and services. Without a further dramatic plunge in sterling, prices will continue to fall.
Inflation in stronger currency areas has remained low. The US stands at 2.1%, while in Germany it has only recently climbed into positive territory at 0.8%. Several countries badly hit by the financial crisis, including Ireland and the Baltic states continue to suffer negative inflation.
Economic growth (GDP)
Confederation of British Industry (CBI)