The CPI has fallen 1.0% sa in February and 3.9% in the four months since the turn in October (versus 4.4% unadjusted). HICP is down 1.1% sa in the three months since its later turn in November. The HICP fall of 0.6% sa in February is its largest to date. The difference between the two is mainly mortgage interest – owner-occupied housing costs are excluded from the HICP.
Year-on-year carryover in the CPI (what the year’s avg for 09 would be versus 08 if there is no further change from Feb) is now -2.7%. At Budget time in October, the expectation was for about +2.5%, so a prospective gap has already opened up of over 5% against Budget-time expectations, even if there are no further CPI falls. The recent ECB cut would have been too late for the March CPI (taken on second Tuesday) but will impact April, as will electricity and gas price reductions. If there are excise duty increases on April 7th., they would be just in time to impact April figs also. It is difficult to know if the currency appreciation against sterling has passed through yet, and there could be some increased outlet substitution bias problems for the CSO to grapple with. Overall there could be some further monthly falls, but the 1%-per-month drop in the CPI can hardly continue for long.
For 5 marks: What would the Budget in October have contained had the Minister known what was going to happen to CPI inflation?