Weak pound and sluggish petrol price rises may slow inflation rate

INFLATION IS expected to have eased at the start of the year, giving consumers a further reprieve from the Brexit-induced jump in the cost of living.

A consensus of economists are expecting the Office for National Statistics’ (ONS) January Consumer Price Index (CPI) to come in at 2.9 per cent today, down from three per cent in December and easing further from the most recent peak of 3.1 per cent in November.

Britons are believed to have benefited from slower food price inflation – which surged as a weak pound made imports more expensive – as well as a less notable rise in petrol prices compared with a year earlier. If today’s ONS figures match forecasts, it would mark the second drop for consumer inflation since June.

But some experts, including Investec economist Victoria Clarke, are expecting inflation to hold steady at three per cent. “January numbers will be accompanied by the new weightings for the CPI basket, which add an extra layer of uncertainty to the upcoming release,” she said.

“This time around we are working on the assumption that the transport services category, air fares particularly, will apply some upward pressure to the 12-month inflation rate, with the month-to-month drop in prices likely to be less than in January last year,” she said.

Ms Clarke said that there are also reports of clothing retailers scaling back promotions after Christmas, when they were able to sell more stock.

The Bank of England - which kept interest rates on hold at 0.5 per cent last week - said it wanted inflation to return to its two per cent target within the “more conventional” time frame of two years, rather than three.