The annual rate of UK CPI inflation eased further in February, from 3.6% Y/Y to 3.4% Y/Y, while the consensus was looking for a slowdown to 3.3% Y/Y. On a monthly basis, CPI inflation rose by 0.6% M/M, more than the expected 0.4% M/M increase. Upward price pressures were led by clothing & footwear (2.9% M/M), household (1.5% M/M), food & non alcohol (1.2% M/M), liquid & vehicle fuels (1.4% M/M), alcohol & tobacco (0.8% M/M), transport (0.6% M/M) and communication (0.6% M/M). Only housing (-0.3% M/M) and recreation (-0.2% M/M)prices dropped in February. As a result, also core inflation surprised on the upside, rising by 0.5% M/M; while the annual rate eased less than expected (from 2.6% Y/Y to 2.4% Y/Y).
Despite the upward surprise, UK inflation is at its lowest level since November 2010, providing some relief for the Bank of England. Inflation is however still significantly above the 2%target, but is expected to slow further in the coming months, although much will depend on the development in the oil price.