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Good news on inflation

Today's data from the Office for National Statistics suggests that last month's surge in inflation was a blip. We are now back to where we were two months ago.

If you want to read my short missive on where this leaves us, it's over on the business website here.

But this month's fall in inflation after last month's rise, raises an interesting question. Do we tend to overreact to monthly data?

There is necessarily always a lot of "noise" in these monthly statistics from the ONS. They go up, they go down. And they go up again.

Indeed, in my early years as an economics journalist, after reporting the inflation figures for the 28th time, I asked myself how I would keep my interest up when I got to 228th time. The answer is that one doesn't need to be too interested in monthly movements at all. There's little point in slavishly following every twist and turn in the figures. Reading meaning into every data release is a distraction from the real goal, which is about identifying the underlying story of the economy.

The monthly data may come in thick and fast, and we might react to it rapidly. But if we react sensibly, the monthly data should only affect our view of the underlying story of the economy fairly slowly.

That being said, we did cover the jump in inflation last month, and led most of our news bulletins with it. I like to think that was not because we overreacted to the data; it was because until then, we had not given enough prominence to the real underlying story that inflationary pressure had picked up. The figures that day made us realise we had a bit of catching up to do.

Finally, a good question for today: should we give much prominence to the fall in the inflation rate this month? If we give you the bad news with lurid headlines in January, shouldn't we give equal space to the good news in February?

Again, I think not. The underlying story last month stands, even if it is not quite as urgent or extreme is it seemed. The inflationary pressure has not entirely evaporated.

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