CPI drops to 3%
UK inflation has peaked and is now on a downward trajectory, market commentators have said, as latest figures from the Office for National Statistics (ONS) show the Consumer Prices Index (CPI) dropped from a five-year high of 3.1% in November to 3% in December.
The slight decline, the first drop since June 2017, was in line with expectations and partly a result of a weaker increase in air fares compared to the same month in 2016. In addition, higher import costs because of the collapse in the value of the pound, which has been largely responsible for driving living costs up in 2017, has fallen out of the figures. Sterling has been steadily climbing since the start of the year and was today trading at $1.38, the highest level since the Brexit vote.
CPI remains above the Monetary Policy Committee’s (MPC) forecast of 2.7%, decreasing the likelihood of the Bank of England raising interest rates in the near term. Commentators also predicted inflation will fall back to the BoE’s target over the course of the year.
Viktor Nossek, director of research at WisdomTree in Europe, said: “As expected, CPI inflation has fallen back from its multi-year high to end 2017 at 3%. We have long expected the rise late last year to be capped around this level because of a lack of underlying wage inflation in the UK, and indeed inflation should now begin to slide back towards the Bank of England’s 2% target.”