- Price rises continue to defy expectations
- Food inflation hits multi-decade high
- Interest rate rise now a certainty
UK consumer prices jumped by 10.4% last month, according to the Office for National Statistics (ONS), confounding economists and investors who were forecasting a slowdown from January?s 10.1% rate of inflation.
Prices were higher across the board, but the stand-out figure was food and non-alcoholic drinks inflation which soared 18.2% last month, the highest rate in 45 years.
NO EVIDENCE OF PRICES FALLING
Despite predictions that consumer price rises would have already dipped to single figures, inflation is actually accelerating in most categories and not just in goods such as food but also in many services.
The gap between market forecasts of 9.9% inflation and the headline figure of 10.4% was the biggest since 2009, with housing and household services costs - typically electricity, gas and other fuels - remaining stubbornly high, and even clothing and footwear prices rising by high single digits.
In services, inflation in the hotel and restaurant sector hit a record 12.1% last month while prices in recreation and culture eased slightly.
The one saving grace for many households is that inflation in transport costs - principally petrol and diesel but also rail fares as of this year - has slowed from the double-digit rates it posted last summer but prices at the pump are still considerably higher than they were a year ago.
INTEREST RATE HIKES ?NAILED ON?
The pound and gilts (government bonds) strengthened on the inflation print as investors reconciled themselves to another rise in interest rates at tomorrow?s Bank of England meeting.
Expectations of a 25 basis-point rise from 4% to 4.25% are now ?nailed on? as far as the market is concerned, the only question being how much further the central bank has to go to stop prices rising.
Its job is made all the more difficult by the fact that on the one hand household energy prices - which form a large part of the inflation basket - are set to rise again in April, and on the other economic confidence is already fragile thanks to worries over the banking sector.
?Today?s UK inflation reading was pretty much the worst possible news for the Bank of England ahead of its rate decision tomorrow?, said AJ Bell investment director Russ Mould.
?The Bank has two key roles - preserving financial stability and keeping a lid on inflation. To fulfil the former, it might have considered a pause on rates, after a crisis in the banking sector which had some uncomfortable echoes of events 15 years ago.
'However, the continuing surge in consumer prices means it can ill-afford any sort of let-up? concluded Mould.
?These are not comfortable numbers and once again they are going in the wrong direction for the Bank?, commented Charles Hepworth, investment director at GAM Investments.
?The central bank will have to continue to act hawkish. Failure to do so under the guise of financial instability risks from the current banking crisis will likely be a major policy mistake.?
Disclaimer: Financial services company AJ Bell referenced in the article owns Shares magazine. The author of the article (Ian Conway) and the editor of the article (Tom Sieber) own shares in AJ Bell.
