Rising Inflation could lead to Interest Rate Rises

Inflation has jumped up to 2.3% in February from 1.8% in January according to the Office for National Statistics’ Consumer Prices Index (CPI).

Rising fuel and food prices have been cited as the reason for the rise in inflation. Food prices are 0.3% higher in February than a year ago.

The Bank of England just last week held interest rates at 0.25% in a monetary policy committee vote that wasn’t unanimous with Kristin Forbes raising concerns over rising inflation. At this point in time inflation stood at 1.8% which was less than the bank’s target of 2%, the fact that it’s now climbed to 2.3% may result in other members of the committee following suit.

The pound strengthened against the Dollar and the Euro last week off the back of the split vote and it strengthened again today following the announcement of rising inflation as the probability rises that interest rates will be increased.

What is CPI?

The Consumer Price Index (CPI) is a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food and medical care. It is calculated by taking price changes for each item in the predetermined basket of goods and averaging them.

Other measures of inflation include:

CPIH

CPIH is an additional measure of consumer price inflation which includes a measure of owner occupiers’ housing costs (OOH). This also measured as growing at a rate of 2.3% in February.

Retail Prices Index (RPI)

RPI is another office for national statistics monthly measure, which looks at the change in the cost of a representative sample of retail goods and services. The RPI rose to 3.2% in February from 2.6% the previous month.