Expected rise offset by downward pressure in other areas
UK inflation unexpectedly fell in February as the prices of clothes and second-hand cars dropped sharply, the Office for National Statistics (ONS) announced today.
Economists had previously anticipated an increase in inflation on account of rising fuel and energy prices. However, the expected rise was offset by downward pressure in other areas, including second-hand cars and clothing.
Clothing and footwear prices fell between January and February for the first time since 2007 and are 5.7% lower than a year before, the biggest annual decline since November 2009.
Danni Hewson, financial analyst at AJ Bell, suggested the figures should be analysed in the context of the pandemic.
“Looking at today’s figures you’d be forgiven for wondering why there has been such concern about rising inflation. Lockdown three has dented seasonal clothing sales at a time we traditionally see prices rise. The cost of toys and computer games have fallen as have second-hand cars and public transport,” said Hewson.
“But these falls must be put into context. Shops are still shut, children had yet to return to school and many workers continue to do their jobs from home. It’s impossible to compare with what’s normally expected. The economy has been distorted and many of the measures the ONS usually looks at have been missing.”
Hewson also looked ahead, warning of the possibility of UK inflation on the horizon.
“Trying to quantify what will happen when lockdown ends is rather like trying to read tea leaves. But February’s figures do raise some red flags and suggest inflationary pressures may be brewing. Creeping commodity prices are beginning to be felt by the consumer. Motor fuels saw a 0.11% hike and housing costs like water and electricity were up 0.1%,” Hewson said.
“Add to that strong wage growth figures, pent up demand and savings for those lucky enough to have missed out on the worst effects of the pandemic and these figures are likely to be the low point. Few doubt the Bank of England’s belief that rising inflation is inescapable in the short term and investors and savers should be prepared.”