Press release

22 Mar 2023

February's inflation surprise should be a one-off – EY ITEM Club comments

Martin Beck, Chief Economic Advisor to the EY ITEM Club, reacts to the latest Consumer Price Index inflation news for February.

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James White
James White

Senior Executive, Media Relations, Ernst & Young LLP

Communications professional experienced in public relations, journalism and media relations. Aston Villa supporter. Passionate about sports and automotive. Former sports journalist.

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  • Consumer Price Index (CPI) inflation surprisingly rose to 10.4% in February. This was primarily driven by an increase in restaurants, hotels, and food prices. But there's still good reason to think that inflation will fall significantly this year, and that February's pickup will likely prove be a one-off.

  • The contribution of household energy prices is set to start falling significantly from April, while strong base effects will come into play across a range of categories. The EY ITEM Club expects inflation to fall to around 3% by the end of this year.  

Martin Beck, chief economic advisor to the EY ITEM Club, says: “CPI inflation surprisingly increased in February, rising to 10.4% from 10.1% in January. Around half of the rise in the annual rate was due to higher prices in the restaurants and hotels category, with food and non-alcoholic drinks prices also showing a notable increase. This was more than enough to offset another fall in petrol prices. Meanwhile, core inflation rose to 6.2% from 5.8% last month.

“There's still good reason to think that inflation will fall substantially this year, and that February's pickup will prove be a one-off. On the back of recent falls in energy prices, the EY ITEM Club thinks the Energy Price Cap is likely to fall to around £2,100 from July, which would contribute to a large decline in the energy component of CPI inflation, from 3.2ppts to -0.4ppts in Q4 2023. This, together with the strong base effects that are likely to come into play for most major inflation components, should put downward pressure on headline inflation. The EY ITEM Club expects the CPI measure to fall to around 3% by the end of the year. 

“February’s outturn adds to the dilemma facing the Monetary Policy Committee. The significant rebound in services inflation bolsters the case for raising rates tomorrow, a case that markets thought was strong before the recent challenges in the banking sector. However, the developments of the past ten days have led to a significant decrease in market expectations for Bank Rate, with markets pricing implying a roughly 50/50 chance of a 25bps hike.”