Inflation looks set to fall from six-year high
BRITAIN’S SOARING inflation has peaked and is expected to roll back from a near six-year high, helping households cope with the sustained squeeze on their finances.
The Consumer Prices Index (CPI) measure of inflation is set to fall to three per cent for December, according to City consensus figures ahead of the official announcement today.
The prediction comes after CPI chalked up its biggest rise since March 2012 at 3.1 per cent in November, following a pause at three per cent for the previous two months.
Consumers have been searching for a reprieve after taking a double-whammy hit from a Brexit-fuelled jump in the cost of living and paltry wage growth.
Samuel Tombs, Pantheon Macroeconomics chief UK economist, has pencilled in an even steeper fall for inflation at 2.9 per cent, predicting supermarkets will have ducked the chance to push prices even higher in December.
He said: “The recent rally in the oil price indicates that the contribution of motor fuel prices probably was 0.04 percentage points higher than in November. But the BRC’s food shop price index suggests that supermarkets took a breather from implementing big sterling-related price rises.
“As a result, food CPI inflation probably edged down to four per cent in December, from 4.1 per cent in November, shaving 0.01pp off the headline rate. In addition, consumer prices for electricity and natural gas held steady in December.”
The lion’s share of November’s rise came from air fares, which recorded a smaller monthly drop at 10.4 per cent, compared to a 13.4 per cent fall over the same period last year. Food and non-alcoholic drinks prices also pushed higher, picking up by 0.6 per cent month on month in contrast to a 0.5 per cent lift for the period in 2016.
Such has been the rise in everyday prices that Bank of England Governor Mark Carney has been forced to write a letter to Chancellor Philip Hammond to explain why inflation touched 3.1 per cent in November.
The Government has set a CPI target of two per cent, with protocol dictating that the Bank must contact Mr Hammond if inflation exceeds three per cent or falls short of one per cent.
The Bank said last month that Brexit-induced inflation is “close to its peak” as it kept interest rates on hold after the first hike for a decade. Its nine-strong Monetary Policy Committee (MPC) voted unanimously to leave rates unchanged in December after the milestone rise from 0.25 per cent to 0.5 per cent the month before.
Alan Clarke, Scotiabank’s head of European fixed income, said rising oil prices could stop inflation from falling more quickly in the coming months.
He added: “Admittedly, the recent steady increase in the price of oil has been pushing petrol prices higher, making the likely slowdown in inflation a little less rapid. In short, inflation should be broadly stable for the next month or so, before slowing sharply over the balance of 2018.”