UK inflation edged down to 10.5% in December, food prices soar

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UK CPI drops to 10.5% in December from 10.7% in NovemberFood and drink prices rise at fastest pace since 1977Services prices rise at fastest pace since 1992Markets see BoE raise rates to 4% in FebruaryFinance minister says high inflation is a ‘nightmare’

LONDON, Jan 18 (Reuters) – Britain’s inflation eased last month after hitting a 41-year high in October, providing some comfort to the Bank of England, but pressure on households remained intense as food and drink prices have risen at the fastest rate since 1977.

Annual consumer price inflation fell to 10.5% in December from 10.7% in November, the Office for National Statistics said on Wednesday, a drop in line with economists’ forecasts in a Reuters poll.

However, while lower gasoline and clothing prices lowered the overall rate, the cost of food and non-alcoholic beverages was 16.8% higher than a year earlier, the highest increase since September 1977, driven by eggs, milk and cheese.

The Bank of England forecast in November that the headline CPI would fall from a peak of 11.1% last October to around 5% by the end of 2023 as energy prices stabilize .

But policymakers have warned of continued upward pressure on inflation due to a tight labor market and other factors, and financial markets expect the central bank to raise its target. main interest rate at 4% on February 2, against 3.5%.

“The headline (CPI) rate cut…may reduce the risk of a wage-price spiral, but these numbers suggest the BoE’s job is not yet done,” said economist Liz Martins. at HSBC.

The British pound strengthened against the US dollar after the data.

British inflation in December was above the annual rate of 6.5% recorded in the United States and that of 9.6% in Germany.

While natural gas prices are lower than they were a year ago, just before Russia invaded Ukraine, they are still several times higher than they were a year ago. mid-2021 and the impact of the increase continues to ripple through the economy.

The core CPI – which excludes energy, food, alcohol and tobacco, and which some economists consider a better guide to underlying inflation trends – remained unchanged at 6.3% in December, contrary to economists’ forecasts of a drop to 6.2%.

[1/3]A worker walks into a Sainsburys supermarket in Richmond, west London, Britain June 27, 2022. REUTERS/Henry Nicholls

Services price inflation – which some BoE officials see as a sign of more lingering inflationary pressures and the secondary impact of rising energy costs and wages – hit its highest level since March 1992 at 6.8%.

Reuters GraphicsWAGE PRESSURES

Finance Minister Jeremy Hunt said after the figures were released that high inflation was a “nightmare for family budgets”, hurting business investment and leading to strikes.

“As difficult as it is, we have to stick to our plan to bring it down,” he said.

Hunt has resisted wage demands from public sector unions, many of which are going on strike because their members’ wages are rising much slower than inflation and less than the private sector average.

Retail price inflation (RPI), used as a benchmark in some wage negotiations, was 13.4% in December, down from 14.0% in November.

Britain’s economy is set to contract this year as inflation squeezes disposable incomes and the BoE expects unemployment to rise, factors which some BoE policymakers say mean little or no further tightening is likely to be needed. .

Other members of the Monetary Policy Committee believe it may be more difficult to bring inflation down to 2% as wages rise at their fastest pace in more than 20 years.

“The evidence this week suggests bold action is needed,” said Hugh Gimber, global market strategist at JP Morgan Asset Management, who expects the BoE to hike rates to at least 4.5%. before stopping.

Reporting by David Milliken; Editing by William James, Kate Holton and Catherine Evans

Our standards: The Thomson Reuters Trust Principles.

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