- Inflation drops from 3.1% in November to 3% in December, as forecast.
- 3% remains among the highest inflation rates in recent years, put it appears that price growth may now have peaked.
- The sharp fall in the value of the pound following the UK’s vote to leave the EU last year has raised the cost of imports, driving inflation.
LONDON – Inflation in the UK dropped a little in December as signs appear that Britain may have passed the peak level of the inflation driven by sterling’s post-Brexit vote drop.
The Office for National Statistics said on Tuesday that the UK’s Consumer Prices Index (CPI) inflation rate – the key measure of inflation – was 3% in December, down from 3.1% in November and matching estimates prior to the release.
CPI measures the weighted average of prices of a basket of goods and services, such as food, transportation, and medical care.
CPIH, a measure which includes costs associated with maintaining a home – and which the ONS cites as a more useful indicator of living costs than CPI – was 2.7% in the month, marginally down from November’s 2.8% reading.
“Inflation has been running at roughly the same rate since last spring following significant increases, partly due to the weaker pound after the European referendum,” ONS Senior Statistician James Tucker said in a statement.
Here’s the ONS’ chart, showing Tuesday’s data as part of the longer term trend:
The sharp fall in the value of the pound following the UK’s vote to leave the EU in the summer of 2016 has raised the cost of imports and pushed up the rate of inflation.
Most major forecasters believed that inflation would peak in late 2017, and start to fall as 2018 progresses, thanks in part to sterling’s recent recovery to almost $US1.40.It would appear that those predictions were correct.
“It now seems likely we’ll see the rate steadily fall back towards the 2% target over the next year or so,” Ben Brettell, an economist at Hargreaves Lansdown said in an emailed statement on Tuesday.
The ONS’ Tucker, however, urged caution in overinterpreting the data, saying that it “remains too early to say whether today’s slight fall is the start of any longer-term reduction in the rate of inflation.”
Inflation’s impact on the British economy is being exacerbated by the fact that real wages are actually growing more slowly than prices are rising, meaning that the average Brit is actually seeing the amount of money they have to spend decrease.
Tobacco prices pushed up overall inflation
On a sector-to-sector basis, tobacco and chemicals were among the biggest individual contributors.
“Rising air fares having a smaller impact on headline inflation than last year and the falling cost of various toys and games helped nudge down inflation in December. These were partially offset by rising tobacco prices,” Tucker said.
“Increasing costs of tobacco and chemicals, partially offset by slowing petroleum price rises, helped push up the price of goods leaving factories. However, there was a slowdown in the increase in raw material costs, mainly due to falling crude oil prices.”
Here’s the chart:
NOW WATCH: Briefing videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.