Inflation slows in December but remains sky-high

UK annual inflation slowed to 10.5 per cent in December, official data showed Wednesday, but remained close to historically high levels.

Prices continued to rise in December, with the Consumer Prices Index (CPI) rate up 0.4 per cent in the month, however annualised inflation slowed to 10.5 per cent from 10.7 per cent in November, the Office for National Statistics said in statement.

The slowing rate of annual inflation reflects a continued fall in the price of motor fuels, clothing and recreation, partially offset by higher food and drink prices

Inflation remains particularly high in the hospitality industry, running at 11.4 per cent year-on-year and the highest level since 1991.

“Inflation eased slightly in December, although still at a very high level, with overall prices rising strongly during the last year as a whole,” said ONS chief economist Grant Fitzner.

He noted that petrol prices “fell notably in December, with the cost of clothing also dropping back slightly”.

“However, this was offset by increases for coach and air fares as well as overnight hotel accommodation,” Fitzner added.

Inflation began soaring last year amid sharp price rises worldwide on supply constraints caused by Russia’s invasion of Ukraine and the lifting of Covid pandemic lockdowns.

Britain was additionally hit by Brexit fallout. The nation’s CPI reached 11.1 per cent in October, the highest level since 1980.

“Inflation continued to slow in December, and now looks to have peaked in October last year,” Nicholas Hyett, investment analyst at Wealth Club, said.

“Lower fuel prices have been a major contributor to the slowdown, and with oil prices now back around where they were before the Russian invasion of Ukraine, there’s likely to be further to fall on that front. As a crucial input into other areas of the economy, lower oil and fuel prices should ultimately ease pricing pressure across the board – although it will take time for the benefit to feed through to people’s purses.

“For now, the cost of living crisis is set to continue. 10.5 per cent inflation may be better than we’ve seen recently but is still eye-watering by most standards. A winter of strikes ahead yet see ‘stickier’ wage driven inflation gathering pace too,” Hyett added.

Official data Tuesday revealed that average British wages sank 2.6 per cent at the end of last year as pay rises failed to keep pace with inflation, triggering major strike action.

While some striking workers have managed to agree new pay deals, tens of thousands of workers across the private and public sectors are preparing for further stoppages.

Britain’s largest teaching and nursing unions are set to join railway workers in walking out in the coming weeks.

It comes as the Conservative government seeks to limit strikes with controversial legislation, arguing that lifting pay can hinder efforts to cool inflation.

Welcoming December’s dip to inflation, Chancellor Jeremy Hunt said in a statement that it was “vital” the government took “the difficult decisions needed” to reduce prices further.

The main policy used to cool inflation is the raising of interest rates by central banks.

The Bank of England and its peers are forecast to keep increasing borrowing costs this year but by less than the aggressive amounts seen in 2022.