Higher tobacco, alcohol prices drive surprise rise in inflation: ONS

UK inflation has increased unexpectedly and for the first time since February last year after rises in tobacco and alcohol prices, according to official figures.

The Office for National Statistics (ONS) said the rate of Consumer Prices Index (CPI) inflation rose to 4 per cent in December, up from 3.9 per cent in November. Most economists had expected the rate to edge lower to 3.8 per cent.

It comes after alcohol and tobacco inflation hit a high of more than 31 years last month, at 12.8 per cent, largely following the increased tobacco duty in November. This offset further falls in food prices, which fell back to 8 per cent last month – down from 9.2 per cent in November and the lowest rate since April 2022.

Grant Fitzner, ONS chief economist, said, “The rate of inflation ticked up a little in December, with rises in tobacco prices due to recently-introduced duty increases. These were partially offset by falling food inflation, where prices still rose but at a much lower rate than this time last year.”

The surprise increase in CPI will deal a blow to hopes the Bank of England could soon move to start cutting interest rates, with inflation still double its 2 per cent target.

It comes after official data on Tuesday showing that wage growth slowed to its lowest rate for 10 months had increased expectations the Bank could consider cutting rates from their 15-year high of 5.25 per cent. There are also concerns over the impact of the Red Sea shipping attacks on inflation, as it threatens to push up the cost of oil, gas and goods being imported to the UK.

Chancellor Jeremy Hunt said, “As we have seen in the US, France and Germany, inflation does not fall in a straight line, but our plan is working and we should stick to it. We took difficult decisions to control borrowing and are now turning a corner, so we need to stay the course we have set out, including boosting growth with more competitive tax levels.”

The latest official figures show tobacco prices surged by 16% year-on-year last month while alcohol inflation hit 9.6 per cent.

Hunt announced the hike in tax on tobacco in last November’s autumn statement, which came hot on the heels of a cigarette duty hike in April of last year. There was some relief for households as food prices eased back sharply once more, coming back down further from 45-year highs seen in 2023.

The ONS said prices also fell at the fuel pumps, with the average price of petrol down by 8.2p a litre between November and December to stand at 142.8p. Diesel prices fell by 7.6p a litre this year to stand at 151.4p.