Inflation hikes unexpectedly to 10.4%

The rate of inflation jumped to 10.4% in February from 10.1% the previous month as food and drink prices rose to their highest rate in over 45 years

The main driver behind the unexpected increase came from restaurants and cafes, where prices rose by 11.4% in the year to February 2023, up from 9.4% in the year to January 2023.

This was a result of larger price rises between January and February 2023 than between the same two months in 2022.

Food and non-alcoholic beverage prices rose by 18.2% in the year to February, up from 16.8% the previous month – the highest observed for over 45 years.

The increase in the annual inflation rate was reflected by the upward pressure from price increases for alcohol served in restaurants, cafes and pubs. The rise followed some price falls in January for items such as gin, whisky and some beers.

Prices of clothing and footwear also rose, overall, by 8% in the year to February 2023, up from 6.2% in the year to January 2023 – but below the recent high of 8.5% in October 2022.

The hike was largely from women’s clothing, where prices rose by more this year than a year ago.

Annual inflation rates for the consumer price index (CPI) including occupiers’ housing costs (CPIH) rose by 9.2% in the 12 months to February 2023, up from 8.8% in January.

The largest upward contribution to CPIH inflation came from housing and household services, particularly from rising electricity, gas and other fuel prices – exacerbated by Russia’s invasion of Ukraine.

David Bharier, head of research at the British Chambers of Commerce (BCC), said: ‘An unexpected rise in the CPI rate to 10.4% indicates that the UK economy is still in the midst of a stubborn peak. The main drivers of inflation – restaurants and hotels, food, and clothing – confirm the pressure we see on the hospitality and retail sector.

‘The longer this goes on, the greater the impact on businesses and consumers as much higher prices become the norm. The March Budget saw little in the way of support for the unprecedented cost pressures businesses face. Relief can come in several forms – for instance, support to transition to more energy efficient sources and improving our trading relationships to ease supply chain difficulties.’

The latest figures have surprised economists who had forecast inflation would slow to 9.9% and has likely added pressure on the Bank of England to hike interest rates when it meets on Thursday.

Paul Dales, chief economist at Capital Economics, said: ‘The reacceleration in overall CPI inflation and core inflation may be enough to tilt the Bank of England towards raising interest rates from 4% to 4.25% despite the recent turmoil in the banking system.’

Commenting on the figures, ONS chief economist Grant Fitzner, said: ‘Inflation ticked up in February mainly driven by rising alcohol prices in pubs and restaurants following discounting in January.

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

‘These were partially offset by falls in the cost of motor fuel, where the annual inflation rate has eased for seven consecutive months.’