Up from 1.4 per cent in November, the annual rate of Consumer Price Index (CPI) inflation rose to 1.6 per cent in December, according to the Office for National Statistics (ONS), marking the fastest increase since the summer of 2014. Mike Prestwood, Head of Inflation at the ONS, stated: “This is the highest CPI has been for over two years, though the annual rate remains below the Bank of England’s target and low by historical standards“.
According to the official measure of inflation published by the ONS, price increases were driven by a hike in air fares and food and material imports. Mr Prestwood added that “petrol prices falling less than last December helped push up the rate of inflation“. The ONS also noted that producer input prices increased by 15.8 per cent compared to the same period in 2016, a 13.3 per cent increase from the previous month.
The increase was partially driven by 2016’s fall in the price of oil, but also rises in the cost of food and metal. This reflects the end of a long period during which falling commodity and food prices counteracted the effects on import costs of the drop in the value of the pound. Neil Mackinnon, global macro strategist at VTB Capital, said “the depreciation in the pound is a special factor for the UK alone – evident in the producer input price levels“.
The consensus among analysts for December’s rate was 1.4 per cent. The pound spiked against the dollar 20 minutes before the figures were published. The core rate of inflation, which excludes food and fuel, has also increased to 1.4 per cent from 1.2 per cent in December.