Chart of the Day: Inflation falls

CPI and RPI both drop by 0.2 points

Thanks largely to lower water, gas and electricity bills, inflation in the UK continued to fall in February, according to new figures released by the Office for National Statistics (ONS).

The consumer price index (CPI) - a measure used to gauge inflation rates across the European Union - dipped in the UK to 3.4 per cent last month, a decrease from 3.6 per cent in January. The Bank of England's target for inflation is 2 per cent on the CPI measure.

A large upward effect came from food and non-alcoholic beverages, clothing and footwear, furniture and household equipment.

The CPI stands at 121.8 in February 2012 (based on 2005=100).

The retail price index in the UK was 3.7 per cent in February, a decrease of 3.9 per cent. This was mainly due to downward pressures from fuel and light and motoring expenditure, while upward pressure came from alcoholic drinks.

The all-goods index is 189.9 in February, up from 186.7 the previous month. The RPI stood at 239.9 in February (based on January 1987=100).

David Page, an economist at Lloyds told the Financial Times:

We are no longer especially confident that inflation will slow back to, never mind below, the Bank of England Monetary Policy Committee’s 2 per cent target over the medium term.

Sylvia Waycot of the financial information service Moneyfacts told the BBC:

It's just a bit too early for everyone to burst into a chorus of 'Don't worry, be happy', as today's figures still mean that there are only 79 accounts out of 1,126 that negate both inflation and the taxman’s cut.

 

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Can Philip Hammond save the Conservatives from public anger at their DUP deal?

The Chancellor has the wriggle room to get close to the DUP's spending increase – but emotion matters more than facts in politics.

The magic money tree exists, and it is growing in Northern Ireland. That’s the attack line that Labour will throw at Theresa May in the wake of her £1bn deal with the DUP to keep her party in office.

It’s worth noting that while £1bn is a big deal in terms of Northern Ireland’s budget – just a touch under £10bn in 2016/17 – as far as the total expenditure of the British government goes, it’s peanuts.

The British government spent £778bn last year – we’re talking about spending an amount of money in Northern Ireland over the course of two years that the NHS loses in pen theft over the course of one in England. To match the increase in relative terms, you’d be looking at a £35bn increase in spending.

But, of course, political arguments are about gut instinct rather than actual numbers. The perception that the streets of Antrim are being paved by gold while the public realm in England, Scotland and Wales falls into disrepair is a real danger to the Conservatives.

But the good news for them is that last year Philip Hammond tweaked his targets to give himself greater headroom in case of a Brexit shock. Now the Tories have experienced a shock of a different kind – a Corbyn shock. That shock was partly due to the Labour leader’s good campaign and May’s bad campaign, but it was also powered by anger at cuts to schools and anger among NHS workers at Jeremy Hunt’s stewardship of the NHS. Conservative MPs have already made it clear to May that the party must not go to the country again while defending cuts to school spending.

Hammond can get to slightly under that £35bn and still stick to his targets. That will mean that the DUP still get to rave about their higher-than-average increase, while avoiding another election in which cuts to schools are front-and-centre. But whether that deprives Labour of their “cuts for you, but not for them” attack line is another question entirely. 

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to domestic and global politics.

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