That's everything from us for this evening. Join us tomorrow morning, when we'll bring you the live inflation reading when it lands at 7am, as well as analysis and reaction throughout the day.
IEA: inflation shouldn’t be Bank of England’s focus
The Bank of England held interest rates at 4.5% last week, with January’s spike in inflation to 3% influencing its decision.
The Bank has a mandate to target a 2% rate of inflation. This is viewed, in general, as a healthy level of inflation for an economy to run at, and most central banks have a similar mandate.
Yesterday, though, the think tank Institute of Economic Affairs (IEA) published a research paper entitled ‘Rethinking monetary policy’ in which it argued that nominal GDP growth, not inflation, should be the core metric that the Bank targets.
The paper argues that inflation targeting as a guide of central bank policy has been undermined by past failures to anticipate inflationary shocks.
“Too often, the BoE has underestimated the influence of fiscal policy and its own balance sheet expansions on inflation trends, contributing to monetary policy decisions that have added to the erosion of real incomes and exacerbated the cost-of-living crisis,” economist Damian Pudner wrote for the IEA.
Nominal GDP (NGDP) targeting, by contrast, would see central banks targeting either a certain level of GDP growth, or a particular change in GDP growth rates. In the case of a supply shock – where output and inflation move against each other – NGDP would let policymakers “allow the price level to adjust to changes in output without immediately tightening policy.”
This is a relatively controversial idea, but it has some pedigree: Sajid Javid recommended a similar shift in Bank policy in 2020, soon after the end of his tenure as chancellor of the exchequer.
What is measured in the inflation basket?
When calculating inflation, the ONS looks at how the price of a basket of goods that is, theoretically, representative of what the average consumer buys and uses in day-to-day life has changed.
The basket is subject to periodic reviews, the latest of which took place last week.
The reshuffle saw VR headsets added to the basket, as well as exercise mats and pre-cooked pulled pork. Fresh turkey and newspaper adverts are among the items removed from the basket.
For the full details, read our explainer: ONS reshuffles inflation basket.
The question is – if you were representing the average consumer, what would the most-bought item in the basket be? For me, it’s biscuits, but let us know your response on the poll below.
Deutsche Bank: inflation could rise in February
Unlike Pantheon Macroeconomics, which expects inflation to remain the same month-by-month in the next reading, Deutsche Bank thinks that inflation could edge upwards this month.
“After an upside surprise to CPI to start the year, we expect headline CPI to inch higher in February,” says Sanjay Raja, senior economist at Deutsche Bank. “We see CPI reaching 3.14% year-over-year.”
Raja forecasts services inflation remaining broadly unchanged at 4.9%, and RPI to fall slightly to 3.52%.
What do households expect to happen to UK inflation in the long term?
Individual consumers have higher expectations of longer term inflation than the MPC or Pantheon Macroeconomics, though.
Last week’s Citi/YouGov survey showed households’ inflation expectations for the coming year hit their highest level for more than a year during February, increasing to 3.9% from 3.5% in January.
“Inflation expectations are on the rise,” writes Sanjay Raja, senior economist at Deutsche Bank. “[Last week’s] Citi/YouGov index highlighted a further shift higher in both near-term and long-term inflation expectations,w ith both measures rising to 3.9%.
“On both sources, inflation expectations now sit well above their long-run averages.”
Longer-term UK inflation outlook
The MPC expects inflation to rise to 3.7% during the first half of this year, driven by increasing energy prices and some regulated prices such as water bills.
Increases in energy prices and water bills could see UK inflation increase from April
Over the long term, it expects inflation to fall back to around its 2% target. However, the MPC notes that there is a lot of uncertainty involved here; the unpredictable tariff regime, or a resumption of the Middle East conflict, could provide upside risk to this outlook.
Pantheon Macroeconomics expects inflation to peak in September at 3.7%, with a dip to 2.8% in March preceding an increase to 3.5% in April.
“Utility price hikes, annual price resets, and in particular water bill and vehicle excise duty increases drive that April inflation jump,” writes Robert Wood, chief UK economist at Pantheon Macroeconomics.
What do experts expect from the inflation reading?
Rob Wood, chief UK economist at Pantheon Macroeconomics, expects the headline CPI inflation rate to hold at 3.0%.
This is slightly higher than the 2.8% that the Bank of England’s Monetary Policy Committee (MPC) forecasts for the end of the first quarter 2025.
According to Wood, the headline figure is likely to be lifted by stronger food and core goods inflation.
“February should be the ‘calm before the storm’ of annual price resets, as government-set price hikes and tax rises drive up headline CPI inflation to 3.5% in April,” writes Wood.
When is inflation data released?
Inflation data for February will be released at 7am tomorrow, Wednesday 26 March.
See our article on upcoming CPI release dates for a full list of the upcoming releases.
Good afternoon, and welcome to our live blog covering Wednesday’s February Consumer Prices Index (CPI) release.
Last month’s release revealed a surprise jump in inflation to 3% in the year to January. Analysts had forecast the headline figure to read 2.8% ahead of the release.
Follow us today and tomorrow as we bring you the latest forecasts, analysis and breaking news surrounding February inflation data.