Inflation slows to fresh two-year low at 3.9 per cent

Inflation has slowed sharply to the lowest level in more than two years on falling petrol prices, official data showed Wednesday, easing a cost-of-living crisis after aggressive interest-rate hikes.

The Consumer Prices Index hit 3.9 per cent in November from 4.6 per cent the previous month, touching a low last seen in September 2021, the Office of National Statistics said in a statement.

The news handed a further boost to embattled prime minister Rishi Sunak after inflation had already achieved his goal of falling below five percent in October.

The ONS said transport – and particularly motor fuels – was the biggest downward contributor to inflation in November.

A much smaller rise in food and drink prices than in November last year also helped, although they remain 27 per cent higher than two years ago.

“Inflation eased again to its lowest annual rate for over two years, but prices remain substantially above what they were before the invasion of Ukraine,” said ONS chief economist Grant Fitzner.

“The biggest driver for this month’s fall was a decrease in fuel prices after an increase at the same time last year. Food prices also pulled down inflation, as they rose much more slowly than this time last year.”

November also marked a sharper slowdown than market expectations of 4.3 per cent, but the rate is nevertheless almost double the Bank of England’s official target of 2.0 per cent.

Inflation had surged to a 41-year peak at 11.1 per cent in October 2022, stoked by spiking energy prices after the invasion of Ukraine by major oil and gas producer Russia and sparking a cost-of-living squeeze in Britain.

The news comes one week after the BoE froze its key interest rate at a 15-year peak of 5.25 per cent – but warned that it will remain elevated to tackle stubbornly high consumer prices.

BoE officials have been cautious about whether recent signs of cooling inflation truly represent a sign that persistent, longer-run price pressures are receding.

“This provides strong evidence that disinflationary pressures are building in the UK,” PwC economist Jake Finney said. “Headline, core and services inflation are all now materially below the Bank of England’s expectations in their last November Monetary Policy Report.”

Chancellor Jeremy Hunt said the data showed inflation pressures were being removed from the economy. Opposition Labour Party spokeswoman Rachel Reeves said people were worse off after 13 years of Conservative government.

Core inflation, which strips out energy and food prices, showed an unexpectedly sharp drop, falling to 5.1 per cent from 5.7 per cent.

The rate of services inflation – which BoE officials pay particular attention to as a gauge of domestically-generated inflation – fell to 6.3 per cent from 6.6 per cent.

(AFP/Reuters)