This measure of inflation, which excludes housing costs, indicates that things may not be as bad on the High Street as some commentators are making out. The fear of deflation is that it will encourage shoppers to hold off on purchases in the hope of getting the same thing cheaper in the future, however as long as High Street prices are rising this will be averted.
As the rate of inflation is now more than 1% (1.2%), over the 2% target rate, it means that Mervyn King, the Governor of the Bank of England, will have to write to the Chancellor of the Exchequer, Alistair Darling, to explain this overshoot.
Meanwhile the Retail Price Index which includes housing costs, declined from 0.1% in January to 0.0% in February, reflecting mortgage rates cuts that have been made over the past year, in the wake of base rate cuts. It is this measure of inflation that the Government uses to set the level of state pensions, welfare benefits and government bonds.
