UK consumer price inflation firmed to 2.8% in February and the forecast here remains that it will reach more than 3.5% by mid-2013 before subsiding modestly during the second half, remaining above the 3% letter-writing threshold – the first chart shows an illustrative profile.
The February rise from 2.7% in January was due to energy and unprocessed food – the annual increase in the remainder of the index slowed from 2.6% to 2.5%. This “core” fall, however, should more than reverse into mid-2013, partly reflecting unusually low monthly increases last year dropping out of the calculation. Energy and food prices, meanwhile, should exert additional upward pressure, with unfavourable base effects again contributing (i.e. price declines for motor fuel and household energy in spring 2012).
The forecast of a further significant pick-up is consistent with a measure of inflation expectations derived from the EU Commission monthly consumer survey. This measure leads actual inflation and reached a 16-month high in February – second chart.
In other news today, annual growth in turnover in services industries rebounded from 2.1% in December to 6.6% in January – the highest since February 2012. This suggests that services output recovered from a December fall and increases the probability that the sector will contribute positively to first-quarter GDP. (January output will be released on 28 March.)
