NIESR publishes February 2022 inflation analysis showing underlying inflation above 5 per cent

The National Institute of Economic and Social Research (NIESR) published its February 2022 inflation analysis on 23 March 2022, reporting headline consumer price inflation of 6.2 per cent, up from 5.5 per cent in January¹. Its own measure of underlying inflation, which excludes 5 per cent of the highest and lowest price changes, rose to 5.1 per cent in February from 4.3 per cent in January¹.

NIESR said the largest contributions to the upwards change in inflation came from the recreation and culture and clothing and footwear sectors, which contributed 0.4 percentage points to the change in the headline figure¹. The largest contributions to the annual figure remained household services, predominantly electricity, gas and other fuels, and transport, predominantly motor fuel¹.

On price-setting, NIESR reported that 30.9 per cent of goods and services prices changed in February, the highest since August 2020, and that approximately 17,000 items recorded price rises, the highest since January 2011¹. It added that 4.3 per cent of prices were reduced due to sales and 4.2 per cent fell for other reasons¹.

Underlying inflation increased in all 12 UK regions, according to NIESR¹. London had the highest annual inflation rate in February at 6.1 per cent, compared with Wales at the lowest, 4.2 per cent¹.

NIESR said its analysis indicates annual consumer price inflation will average 7 per cent in 2022¹. It said the February figures will not include the impact of the Russia-Ukraine war, but that the expected short-term rise in inflation following the war will likely force consumers to tighten their belts further and dent economic growth¹. It added that higher energy prices, alongside rising VAT the following month and second-round effects, mean consumer prices are likely to remain above the Bank of England's target until 2024, and that it expects the Bank of England to continue raising interest rates in 2022¹.

Why it matters for households

The figures describe how quickly the prices of a broad basket of goods and services rose in the year to February 2022, and how widely that rise was spread. Headline inflation of 6.2 per cent means the average price level was 6.2 per cent higher than a year earlier¹. NIESR's underlying measure, at 5.1 per cent, strips out the most extreme price movements to show how broad the pressure was, and it rose by more in the month than at any time since November 2021¹.

The regional figures show the rate varied across the UK, from 6.1 per cent in London to 4.2 per cent in Wales, so the pace at which prices were rising depended on where a household lived¹. NIESR also identified household services, mainly electricity, gas and other fuels, and transport, mainly motor fuel, as the largest contributors to the annual rate¹. These are categories most households buy regularly, which is why the report frames the effect as pressure on household budgets.

The 7 per cent average forecast for 2022 and the projected peak above 8 per cent in the third quarter are NIESR's projections, not recorded outcomes¹. NIESR states that the February data predate the Russia-Ukraine war, so any effect from it is not in these numbers¹. The CPI and CPIH measures are the headline gauges of UK consumer prices, and the latest inflation figures are published to a set schedule.

What happens next

NIESR expects annual consumer price inflation to average 7 per cent in 2022 and to peak above 8 per cent in the third quarter of 2022¹. It expects the Bank of England to continue raising interest rates in 2022, and says consumer prices are likely to remain above the Bank's target until 2024¹. No further dates are given in the analysis.