Inflation unexpectedly accelerates as price of food rockets

British annual inflation unexpectedly accelerated in February despite central bank efforts to tame a growing cost-of-living crisis, official data showed Wednesday.

The Consumer Prices Index (CPI) rose by 10.4 per cent in the 12 months to February 2023, up from 10.1 per cent in January, the Office for National Statistics said.

The news strengthened the case for another interest rate hike on Thursday from the Bank of England, despite calls for no change amid global turmoil in the commercial banking sector.

Expectations had been for a slowdown in UK inflation, but prices jumped for food and drinks – offset only partially by falling motor fuel costs.

“Inflation ticked up in February, mainly driven by rising alcohol prices in pubs and restaurants following discounting in January,” said ONS chief economist Grant Fitzner.

“Food and non-alcoholic drink prices rose to their highest rate in over 45 years with particular increases for some salad and vegetable items as high energy costs and bad weather across parts of Europe led to shortages and rationing.”

The BoE is caught between hiking borrowing costs to dampen inflation – or hanging fire amid ongoing fallout from the collapse of two regional US banks and the UBS buyout of embattled Swiss giant Credit Suisse.

Wednesday’s data comes after the UK government last week forecast inflation would slow sharply to 2.9 percent by year-end, with the nation set to avoid recession.

The predictions were published alongside Chancellor Jeremy Hunt’s massive £94-billion cost-of-living measures for this year and next.

“We need to stick to our plan to halve it this year,” Hunt said Wednesday in response to the latest data.

“We recognise just how tough things are for families across the country, so as we work towards getting inflation under control we will help families with cost of living support.”

Inflation around the world had struck the highest levels in decades last year as the invasion of Ukraine by Russia fuelled energy and food prices.

The BoE, whose chief task is to keep inflation close to two percent, will unveil its latest

Nicholas Hyett, Investment Analyst at Wealth Club, said the unexpected tick up in inflation  will put central bankers in a squeeze.

“We’re already seeing fallout from the rapid rise in interest rates around the world, with weaker banks outside the UK starting to pop under the pressure. The hope was that a steady drift down in inflation would let central bankers ease back on rate rises,” he said.

“Instead a spike in food prices, up 18.2 per cent and the highest it’s been since 1977, and higher prices in restaurants and hotels, up 12.1 per cent, means the fight against inflation is not yet over.

“Food inflation is already back in the disco era, the challenge for central bankers is to limit other reminders of the late 70s to flared jeans and shoulder pads. Unfortunately that leaves the Bank of England with unappealing choices  – ease back on rate rises but risk leaving inflation running higher when households are already struggling, or stay in the inflationary fight and risk further economic crunches. It’s a circle that’s not easily squared.”