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Falling costs of clothing and cars drive inflation drop

John Fitzsimons
Written By:
John Fitzsimons
Posted:
Updated:
24/03/2021

The Consumer Prices Index (CPI) measurement of inflation dropped to 0.4% in February from 0.7% in January, new data from the Office for National Statistics has revealed.

There was a similar drop in the index when owner occupiers’ housing costs (CPIH) are included, from 0.9% to 0.7%.

The ONS pointed to falling prices for items like clothing, second-hand cars, and games, toys and hobbies as being significant drivers in the inflation drop.

This was somewhat offset by significant increases in pricing for the likes of motor fuels and housing and household services overall.

How the pandemic has affected our clothes shopping

The price of clothing dropped 5.6% over the year, the largest drop in a decade. 

The ONS noted that when it comes to clothing and footwear, pricing normally follows a seasonal pattern with prices rising between January and May, before falling between May and July in advance of new autumn product ranges, before prices then rise again until December.

This was rather different in 2020 though, with increased discounting in March and April, with prices then relatively stable until August. Prices increased as usual between August and October, but then fell, likely because more areas went into lockdown again.

The only way is up

Sarah Coles, personal finance analyst at Hargreaves Lansdown, suggested that this is likely to be a low point for inflation.

She noted that fuel prices collapsed at the start of the pandemic, so we will soon be comparing our current pump prices to very depressed levels, while there will be a similar impact from second-hand cars, given the drop in demand when we were all told to stay at home in the first lockdown. 

This was echoed by Adrian Lowcock, head of personal investing at Willis Owen, who argued that savers and investors cannot afford to be complacent as even with inflation so low, most savings deals still struggle to deliver a return in real terms.

He added: “With inflation almost certain to rise in the coming months, now is the time to ensure portfolios are optimised to deliver higher returns and thus protect peoples’ long-term spending power.

“Savers need to be proactive by actively chasing the best rates or using a service which makes it easy to compare a range of products.”