Inflation rebounds unexpectedly – credit industry reaction

Figures from the Office for National Statistics (ONS) show inflation rose more than expected last month to hit 10.4%, up from 10.1% in January. Economists had predicted a slight drop to 9.9%.

The rise was driven by a continued rise in food costs, which increased by 18.2% in the year to February, the fastest rise since 1977. Rising prices in restaurants and cafes, and for food and clothing also pushed the figure up. Core inflation, which strips away volatile components like gas and energy, rose from 5.8% in January to 6.2% in February

Commenting on the figures Joanna Elson CBE, Chief Executive of the Money Advice Trust said “Today’s inflation figures show that the relentless pressure on household budgets is set to continue with no sign of easing soon.”

“The continued support for energy bills announced in the Chancellor’s budget is welcome, but for many households the impact of high costs has already taken a heavy toll. And with higher council tax bills imminent and costs remaining high across the board, the situation is only set to get harder, especially for people already struggling.”

“I would urge anyone worried about their finances to contact a free, independent debt advice service like National Debtline as soon as possible. Our advisers will be able to take you through your options and your next steps.”

Alastair Douglas, CEO of TotallyMoney said “Prices are still rising at a rapid rate, albeit a slightly slower one than we’ve become used to in recent months. At the same time, wages are on the slide, and when adjusted for inflation have fallen by 3.2% since November last year. Put simply, people are taking pay cuts.”

“They’re borrowing money to plug this gap, and while last week’s Budget provides some respite — it doesn’t address the issue that nearly nine million adults are struggling to cover everyday essentials.”

“Even if we do reach the Bank of England’s 2% inflation target by autumn, the problem isn’t going away. Research from The Resolution Foundation found that households are still feeling the impact of the 2008 credit crunch, and that fifteen years of sustained wage stagnation is leaving workers £11,000 per year worse off.”

“The government needs to provide a long-term, coherent plan which protects people and puts them in control of their own financial future. Otherwise, we’ll be in this position in another fifteen years’ time.”

Simon Webb, Managing Director of Capital Markets and Finance at LiveMore said  “The rise in inflation is disappointing and remains well above the Bank of England’s target with high growth in prices, especially in the essentials such as food and energy. The halt on the rise of the energy cap in April for a further three months is welcome but it is only a temporary measure.”

“Markets still expect the Bank of England to raise interest rates in the short term by another 0.25%, although are split between whether that happens in March or May with other global factors at play aside from the war in Ukraine.”

“The emergence of a potential new banking crisis (the collapse last week of Silicon Valley Bank and Signature Bank in the US and Credit Suisse being rescued via a takeover from UBS) doesn’t bode well for the global banking system and adds a further dynamic for central banks to consider when making decisions around interest rates.  The question is what impact do all of these factors have on inflation?”

James Smith, Research Director at the Resolution Foundation, said “The surprise inflation rise last month will further complicate the decision facing MPC members over what to do about interest rates, as they grapple with turmoil in the banking sector.”

“Hospitality and food costs continue to drive up inflation. The latter means lower-income families are facing the greatest price pressures of all, with an effective inflation rate above 12 per cent.”

“Significant falls in inflation are still on the cards in the coming months, with household energy costs set to start falling from July, and signs that pay growth has stalled.”

Sarah Coles, Head of personal finance, Hargreaves Lansdown sai“The surprise rebound in inflation may well convince the Bank of England that it needs to keep raising rates. Not only is overall inflation still in double-figures, and on the rise, but core CPI is also up from 5.8% last month to 6.2%. This may well ring alarm bells at the Bank, which keeps a close eye on this measure,”

“We’re still expecting inflation to drop back later this year, especially after April when last year’s energy price hike drops out of the figures, so while this is a surprise, it’s not a horrible shock. The descent was always going to be bumpy, it’s just that this particular bump feels larger and more painful than had been expected.”

“A 12.1% price rise among hospitality businesses helped push inflation higher, with higher booze prices behind much of the move. Hotels and restaurants are also wrestling with everything from rising food costs to higher energy prices, and wage rises, which has persuaded them that prices need to go up. This will come as fairly miserable news for anyone planning to holiday close to home this year, who could be in for a nasty surprise when they get the bill.”

“Food prices in the supermarket rose yet again to an incredible 18.3%. Shortages of salad vegetables haven’t helped here, as bad weather hit supplies from further afield, and higher energy prices put growers off heating their hothouses further north, severely limiting the options for supermarket buyers. Those tomatoes, cucumbers and peppers that made it to the shelves did so at a much higher price, which has made healthy eating an increasingly expensive business.”

“Energy price inflation is still horrible – with electricity prices up 66.7% in a year and gas up 129.4%. This is miserable news for all of us, especially as we face the final month of energy rebates from the government.”

“However, there is better news on the horizon. The Energy Price Guarantee is still in place – and is now guaranteed to stay at £2,500 until July. The even more positive news is that from that point, the energy price cap is expected to fall below £2,000. It’s still eye-wateringly expensive, but it’s moving in the right direction. It means that when last year’s price hike in April falls out of the figures, we are likely to see significantly lower energy price inflation – which in turn will help depress overall inflation.”