U.K. headline inflation accelerates in February

The U.K. headline inflation accelerated in February. On a year-on-year basis, the consumer price inflation accelerated to 1.9 percent, coming above consensus expectations of an unchanged print of 1.8 percent. The upward influences to February were greatly concentrated in non-core areas of the inflation basket. Compared to last year, food beverage and tobacco prices rose by more this February.

In the meantime, higher recreation and cultural prices also played a part, reflecting rises in audio-visual equipment and books, newspapers & stationery. Nevertheless, these were countered by downward influences in other ‘core’ goods prices, such as clothing & footwear and furniture & household goods, where prices this February rose by less than in February 2018. Therefore, the core inflation rate eased to 1.8 percent year-on-year from 1.9 percent.

From here, the inflation is likely to trend higher, noted Lloyds Bank in a research report. The move in inflation below 2 percent that was seen in January was always likely to be temporary. The effect of next month’s increase in the energy price cap should ‘guarantee’ that CPI moves above 2 percent by April. However, the outlook for inflation depends on the degree to which domestic price pressures build.

“In the scenario that current uncertainty about the UK’s withdrawal from the EU is resolved soon, the outlook for inflation is consistent with our view that modest increases in Bank Rate are likely to be required over the forecast horizon”, added Lloyds Bank.

The CPIH and RPI measures recorded the unchanged prints of 1.8 percent and 2.5 percent year-on-year, respectively. The latter reflected a couple of measurement effects. Firstly, weaker clothing prices had a bigger downward impact on the RPI because of the formula effect, while slowdown in house price growth lowered the contribution to RPI inflation from the housing depreciation component.

At 13:00 GMT the FxWirePro's Hourly Strength Index of Euro was highly bearish at -186.696 while the FxWirePro's Hourly Strength Index of US Dollar was neutral at -26.1705 more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex