"We still predict inflation rates are on course to rise rapidly this year with most of the increase coming in the next few months."
On a monthly basis, CPI rose by 0.1% in February 2021, compared with a 0.4% rise in February 2020.
CPIH inflation, which includes owner occupiers’ housing costs, rose by 0.7% in the 12 months to February, down from 0.9% to January.
On a monthly basis, the CPIH rose by 0.1% in February 2021, compared with a larger rise of 0.3% in February 2020.
Falling prices for clothing, second-hand cars, and games, toys and hobbies resulted in the largest downward contributions to the change in the CPIH 12-month inflation rate between January and February.
These were partially offset by large upward contributions from rising prices for motor fuels, and housing and household services overall.
Janine Boshoff, NIESR economist, commented: “Headline inflation decreased to 0.4% in February, down from 0.7% recorded in January. Our measure of underlying inflation, which excludes extreme price movements, decreased to 0.2% in February. Inflation is expected to reflect some volatility in the short term as the effect of ongoing lockdown impacts consumer prices in the non-essential retail market. February normally records higher prices in clothing and footwear category as January sales unwind, but this year the impact of the ongoing lockdown reversed this pattern, playing a big part in the fall in inflation in February.”
Paul Craig, portfolio manager at Quilter Investors, added: “While we continue to see incremental increases in inflation, which increased by 0.1% in February 2021, we still predict inflation rates are on course to rise rapidly this year with most of the increase coming in the next few months. This is likely to be driven by the raising of the price cap for many domestic energy bills and a surge in oil prices, while ultimately a return in consumer demand will result in higher prices. There are other domestic base effects to take into account too, for example higher restaurant prices when compared to last year’s Eat Out to Help Out scheme, while those businesses that have survived on the high street may find they have improved pricing power and may wish to try and take advantage of people’s thirst to get out an about.
“That said, regardless of specific domestic issues, all central banks are in the same boat and will largely ignore short-term inflationary pressures – now is not the time to worry. The Bank of England will want to try and give the economy time to normalise before acting on rising inflation, and as such it is likely a blip investors will need to learn to tolerate rather than try and act on as they could easily get caught out. As was reinforced last week we are still a long way off central banks moving interest rates upwards and if inflation does begin to spiral they have the tools available to quash it quickly. Now is the time to hold your nerve and remain diversified in what remains an incredibly uncertain time.”
