UK Inflation Slows As Expected In February

UK consumer price inflation slowed in February driven by motor fuels and computer games and output price inflation reached its lowest since mid-2016, data from the Office for National Statistics showed Wednesday.

Consumer prices advanced 1.7 percent from last year, as expected, slower than the 1.8 percent gain in January. This was also below the central bank’s 2 percent target.

Meanwhile, core inflation that excludes energy, food, alcoholic beverages and tobacco, rose to 1.7 percent from 1.6 percent in January. The expected rate was 1.5 percent.

On a monthly basis, overall consumer prices rose 0.4 percent versus forecast of 0.3 percent.

The drop in CPI inflation to 1.7 percent in February was a small sign of things to come, Ruth Gregory, an economist at Capital Economics, said. She expects the effects of the coronavirus crisis to drag inflation below 1.0 percent in the months ahead.

“In response to the developing COVID-19 pandemic, we are working to ensure that we continue to publish our consumer price statistics,” the ONS said. The ONS said it is encouraging the staff to work from home and to avoid unnecessary travel and social contact.

The statistical office said it has an established infrastructure to help mitigate the changes. However, there will inevitably be challenges around some of collection activities.

The Bank of England had cut its key rate to a record low 0.1 percent and expanded its bond buying scheme at an unscheduled meeting last week to support to the UK economy amid the spread of the coronavirus, or Covid-19.

Another report from ONS showed that output price rose only 0.4 percent annually in February, which was the lowest rate since July 2016.

Economists had forecast prices to climb 0.9 percent after rising 1 percent in January. Nonetheless, the annual rate has remained positive for 44 straight months.

Month-on-month, output price inflation turned negative in February. Prices dropped 0.3 percent, following a 0.2 percent increase seen in January.

Input prices fell for the first time in three months in February. Prices were down 0.5 percent on year, in contrast to a 1.6 percent rise seen in January. Economists had forecast a 0.9 percent fall.

Likewise, input prices decreased 1.2 percent on a monthly basis after rising 0.3 percent a month ago. This was the lowest since December 2018.

UK house price inflation eased to 1.3 percent in January from 1.7 percent in December 2019, the ONS said in a separate report.

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