According to the Office for National Statistics, consumer price inflation has eased from 3% to 2.7%. The inflation data is calculated against a basket of standard purchases designed to mimic what the typical British household buys regularly. The data is computed against the prices over a twelve month period, so in the year to January, the price of the standard basket increased by 3% whereas if you move the boundary forward another click, in the year to February, the increase in prices was 2.7%. This is an important distinction since many people reading the headline data think that the easing of inflation was a monthly decline from January 2018 to February 2018: not so.
In the year to February, the decline in fuel prices for petrol was seen as a key factor pushing inflation lower. In February 2017, the cost of a barrel of Brent crude was $56.32, this February it comes in at $65.04. The values of Sterling against the Dollar for the comparable periods were $1.2479 and $1.3982, respectively. The decline in fuel price is strongly correlated with the weakening of the Dollar against other major currencies, including Sterling. The fact that the absolute price of Brent crude (a surrogate for petrol prices) has increased over the year to the end of February, illustrates the vulnerability of the UK to currency-derived inflation; should investors decide that the Dollar is under-priced (increasingly likely) then UK petrol prices will rise as GBP:USD slips.
The February CPI reading is the best seen since July 2017. The figures for average wage increases (outside the public sector which is still officially capped at 1%, but set to be broken) is due out later today, but is anticipated to come in marginally below inflation. This means that disposable income continues to decline for the average household since prices are rising faster than inflation.
The data for CPI is seen as easing the pressure on the Bank of England to increase its base interest rate at the May meeting, but others caution that the Bank may act since it is anticipated that wage inflation may take off due to the relative shortage of workers with official unemployment bumping along at 4.4% of the workforce.