Fuel costs push inflation rate up to 2.8%
UK inflation rose to 2.8% in February, after four months of being stuck at 2.7%.
The Consumer Prices Index was pushed up last month mostly due to increases in electricity and gas bills, according to the Office for National Statistics. Petrol, air transport and recreational goods such as games and photographic equipment were also cited as key drivers of inflation.
Many people will be feeling the effects of rises in fuel prices; petrol increased 4 pence per litre between January and February, with diesel not far behind. Over the same period last year the prices increases were less than half this rate at 1.9 and 1.4 pence per litre respectively.
The ONS says these these rises were offset by prices of confectionary and soft drinks, for example, coming down.
Hammer blow for households
William Hunter, director of Hunter Wealth Management, says rising inflation is a "hammer-blow" for UK households. "The high cost of living is amplifying an already brutal economic situation tenfold." He adds that the Bank of England does not appear to have any mechanism in place to control it.
Financial statistics company Moneyfacts says to beat inflation, a basic-rate taxpayer needs to find a savings account paying at least 3.5% a year, and a higher-rate payer needs to find 4.66%.
The new measure of consumer price inflation, CPIH, which includes owner occupiers' housing costs, was recorded for the first time in February and currently the 12-month rate stands at 2.6%, up from 2.5% in January.
A further new measure of inflation, the RPIJ, which is a new variant of the Retail Prices Index, has recorded a slight decrease in the rate at 2.6%, down from 2.7%. RPI also fell slightly, from 3.3% in January to 3.2% in February.
Economic analysts Capital Economics says inflation looks likely to peak at about 3.5% over the summer before easing back slightly.
This article was written for our sister website Money Observer
Replaced as the official measure of inflation by the consumer prices index (CPI) in December 2003. Both the Retail Price Index and CPI are attempts to estimate inflation in the UK, but they come up with different values because there are slight differences in what goods and services they cover, and how they are calculated. Unlike the CPI, the RPI includes a measure of housing costs, such as mortgage interest payments, council tax, house depreciation and buildings insurance, so changes in the interest rates affect the RPI. If interest rates are cut, it will reduce mortgage interest payments, so the RPI will fall but not the CPI. The RPI is sometimes referred to as the “headline” rate of inflation and the CPI as the “underlying” rate.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).