Surprise fall in inflation as clothing costs tumble but lockdown likely to trigger hike
Inflation unexpectedly eased last month amid falls in the prices of clothes, second-hand cars and toys, but the direction of travel is expected to change as lockdown is lifted.
Official figures showed that the annual rate of consumer price inflation fell to 0.4 per cent in February from the 0.7 per cent measurement in January and 0.6 per cent in December.
Jonathan Athow of the Office for National Statistics (ONS) said: “A fall in clothing prices helped to ease inflation in February, traditionally a month where we would see these prices rise, but the impact of the pandemic has disrupted standard seasonal patterns.
“Elsewhere there were falls in the price of second-hand cars. However, prices at the pump rose this month, compared with a fall this time last year.”
The cost of clothing and footwear followed an unusual pattern during 2020.
Prices normally rise between January and May, before falling until July, but last year discounting increased in March and April, probably as a response to the first lockdown. They then remained stable until August, before increasing as usual until October.
But as large parts of the UK re-entered lockdown in November, prices fell again, unusually for the time of year.
Taken with a heavy price drop in January, the cost of clothing and footwear reduced by 5.6 per cent in the year to February 2021 – the biggest fall since November 2009.
Ulas Akincilar, head of trading at the online trading platform Infinox, noted: “Another full month of lockdown living successfully squashed inflationary pressure in February.
“With Britons largely confined to their homes and all but essential shops closed, overall consumer prices held remarkably steady.
“However with Brent crude [oil] still comfortably above its pre-Covid level and even climbing to within touching distance of $70 a barrel in March, oil prices have the potential to drive up consumers’ travel costs sharply as the economy unlocks in coming months.
“Economists are predicting a spike in inflation as Britons go on a spending spree following the lifting of lockdown Covid restrictions.”
Ed Monk, associate director, personal investing at Fidelity International, said the numbers “set up a potentially crucial few months”.
He added: “As well as lockdown being eased, household energy price falls will fall out of year-on-year comparisons and begin to add upward pressure to inflation numbers. Oil prices also remain elevated and will begin to be felt.
“The Bank of England expects inflation back at its 2 per cent target by the end of 2021 but others expect it to come through even more strongly.
“Investors should expect some volatility as rising inflation puts pressure on the bond market – as we have seen in the past few weeks. Higher inflation also underlines, however, the real-terms losses inflicted on cash savings.”
A separate measure of inflation called CPIH, which includes housing costs of people who own and occupy a property, came in at 0.7 per cent, down from 0.9 per cent in January, the ONS said.
The retail price index stayed flat at 1.4 per cent between January and February.