Inflation reaches highest level since 2013

21 March 2017
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The Consumer Prices Index (CPI) rate of inflation rose from 1.8% in the year to January to 2.3% in the year to February, the Office for National Statistics (ONS) has today announced.

February’s rate is the highest since September 2013, having steadily risen since late 2015.

The ONS says the increase has been driven by rising transport costs – in particular rising petrol and diesel costs – as well as increasing food prices.

 

The new Consumer Prices Index including owner-occupiers’ housing costs – called CPIH, which is not a National Statistic – also reported a 12-month inflation rate of 2.3% in February 2017, up from 1.9% in January.

“Bank of England expected to hold interest rates”

Ben Brettell, senior economist at Hargreaves Lansdown, says: “Bank of England policymakers predict inflation will peak at 2.8% in the first half of next year, before a gradual fall back towards the 2% target. Many economists forecast a much higher peak, with respected think-tank NIESR saying inflation will reach 3.7%.

“But despite elevated inflation, those hoping for higher interest rates are likely to be in for a long wait. The most recent Bank of England minutes note that to attempt to offset the effect of weaker sterling on inflation would come at a cost of higher unemployment. As such I expect the Bank to look through these higher numbers and keep bank rate at 0.25% for the remainder of this year.”

The problem with rising inflation is that it erodes the real term value of savings, and with cash interest rates so low, savers may want to consider investing in order to beat rising inflation.

 

Maike Currie, investment director for personal investing at Fidelity International, says: “Inflation is a ‘Jekyll and Hyde’ character. It chips away at the value of money, which is good news for borrowers because this reduces the value of their debts. However, it also erodes the spending power of future interest and dividend payments and eats away at the worth of your original capital – bad news for savers and investors.

“If you want to add some inflation protection to your portfolio, have a look at physical assets such as gold, agriculture and property - all good protectors against the wealth-eroding effects of inflation.”

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