- Reuters/Neil Hall
- Headline consumer price inflation was unchanged at 3% in January.
- Inflation had been expected to fall at the start of the year, but failed to do so.
- “The cost of entry to attractions such as zoos and gardens” was a key driver in the higher than expected reading.
LONDON – The level of inflation remained unchanged at the beginning of 2018, confounding expectations that it would start to fall sharply as the year commenced.
The Office for National Statistics said on Tuesday that the UK’s Consumer Prices Index (CPI) inflation rate – the key measure of inflation – was 3% in January, unchanged from the level seen in December’s data release, the final one of 2017.
CPI measures the weighted average of prices of a basket of goods and services, such as food, transportation, and medical care.
CPIH, a measure which includes costs associated with maintaining a home – and which the ONS cites as a more useful indicator of living costs than CPI – was 2.7% in the month, once again unchanged from December’s reading.
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“Headline inflation was unchanged with petrol prices rising by less than this time last year. However, the cost of entry to attractions such as zoos and gardens fell more slowly,” ONS Senior Statistician James Tucker said in a statement.
“After rising strongly since the middle of 2016, food price inflation now appears to be slowing.”
Here’s the ONS’ chart, showing Tuesday’s data as part of the longer term trend:
The sharp fall in the value of the pound following the UK’s vote to leave the EU in the summer of 2016 has raised the cost of imports and pushed up the rate of inflation.
Most major forecasters believed that inflation would peak in late 2017, and start to fall as 2018 progresses, thanks in part to sterling’s recent recovery to almost $1.40.
“The unchanged CPI print for January continues to validate our view that the downtrend in inflation is likely to be very gradual,” Nikesh Sawjani, an economist at Lloyds Bank’s commercial arm said.
“Over the coming months, as the fading impact of previous sterling weakness unwinds, domestic inflation pressures are expected to build, ensuring that the return in CPI towards its 2% target is expected to be very slow.”
Inflation’s consistent overshooting of the Bank of England’s government mandated 2% target over the past year or so is one of the main drivers for the bank’s recent assertions that it will likely raise interest rates faster, and to a greater extent than previously expected during 2018.
“It will be likely be necessary to raise interest rates to a limited degree in a gradual process, but somewhat earlier and to a somewhat greater extent than what we had thought in November,” Governor Mark Carney said in a press conference following a meeting of the BoE’s Monetary Policy Committee last week.