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Booze, food, and tobacco pushes UK inflation to 1.9%

Alanna Petroff
Senior Economics Correspondent at Yahoo Finance UK
Labour statistics show average UK wages have risen by about 3.5% from last year. But inflation eats into those pay gains. Photo: Cate Gillon/Getty Images

The UK inflation rate ticked up in February to 1.9% from 1.8% in January, according to fresh data released on Wednesday morning by the UK’s Office for National Statistics (ONS).

Rising prices for booze, food and tobacco were a big contributing factor behind the first increase in the UK inflation rate since the summer of 2018.

Rising prices for food, alcohol and tobacco… produced the largest upward contributions to change in the rate between January and February 2019,” the ONS said in its inflation report.

Inflation had generally been settling down in recent months after spiking to a high of 3.1% in late 2017, following the Brexit referendum.

The surprise result of the referendum caused the UK pound (GBPUSD=X) to crash against the US dollar, euro and other global currencies, which made it more expensive to import goods from abroad and ultimately pushed up prices across the country.

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The Bank of England’s top priority is to keep the country’s inflation rate at 2% in an effort to ensure stable prices for consumers and businesses, which promotes a sound economy and properly functioning markets.

The top inflation expert at the ONS, Mike Hardie, called the current inflation rate “stable,” noting that while prices for food, alcohol and tobacco jumped, this was offset by slower price increases for clothing and shoes.

Workers will be relieved to see the inflation rate has remained well below the average increase in employee pay. Workers have seen their pay rise by about 3.5% in the past year, according to recent ONS data. The rise in wages is the result of a tightening labour market and low unemployment.

“Wage increases are running comfortably above inflation, with the current run of real earnings growth showing little sign of ending anytime soon,” said David Cheetham, chief market analyst at the online trading platform XTB.

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