Latest UK inflation data – December 2015

UPDATE: Listen to Pete talk about the latest numbers on Share Radio:

The December inflation figures showed CPI inflation creeping slightly higher again at 0.2% as we anticipated. The main drivers for the slightly higher rate this month were continued increases in services such as restaurants/hotel costs, an spurious rise in airfares, and a lesser decline in petrol prices than was witnessed at the same time last year.

Food retailer competition continues to drag down the UK inflation rate. In December there was fierce competition on alcohol prices and in other food areas (cauliflower being the key one apparently). The prices of many agricultural commodity products are still declining in supermarkets e.g. butter, sugar, flour, milk etc. Some clothes retailers also commenced sales earlier dragging down the prices of some key garments.

Not so obvious from the headline data is the continued rise in service prices (up 2.9% year-on-year) and their growing disparity with the decline in the cost of goods (down 2.1%). The difference between the two has grown higher than has been seen for a long time. Underlying inflation excluding seasonal food and energy costs is also increasing and now at 1.4%.

However everything is set to change with the release of next month’s data. The rapid decline in petrol prices at the turn of 2015 will fall out of the calculation. Although fuel prices are lower today than a year ago (102p vs 107p, according to Fleet News), that compares to the 12p difference seen in December over the same time period.

Our prediction is that CPI will rise to 0.5% in the January data and rise to 1% by the time the April data is published. The corresponding RPI figures being 1.5% and 2% respectively.

The full ONS stats can be found here.

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