UK Consumer Price Inflation Doubles In December

UK consumer price inflation doubled in December on higher transport and recreation costs, data released by the Office for National Statistics showed on Wednesday.

Inflation accelerated to 0.6 percent from 0.3 percent in November. The rate was above economists’ forecast of 0.5 percent.

Month-on-month, consumer prices advanced 0.3 percent, reversing a 0.1 percent drop in November and faster than the expected rate of 0.2 percent.

Excluding energy, food, alcoholic beverages and tobacco, core inflation increased to 1.4 percent from 1.1 percent in November. Core inflation was seen at 1.3 percent.

Costs of transport and recreation and culture advanced 1.9 percent and 2.6 percent, respectively. Food and non-alcoholic beverages prices dropped 1.4 percent and clothing and footwear prices were down 1.8 percent.

At the December monetary policy meeting, policymakers said inflation will rise quite sharply towards the target in the spring, as the VAT cut comes to an end and the large fall in energy prices earlier in 2020 drops out of the annual comparison.

Inflation is likely to rise to almost 2.5 percent in late 2021, Thomas Pugh, an economist at Capital Economics, said. However, economic slack will prevent inflation from spending much time above its 2 percent target in 2022.

Another report from the ONS showed that output prices dropped for the tenth consecutive month in December. However, the pace of decrease was the slowest since March 2020.

Output prices fell 0.4 percent annually, following a 0.6 percent drop logged a month ago. On a monthly basis, output price inflation held steady at 0.3 percent.

Economists had forecast output prices to fall 0.6 percent on year but to rise 0.2 percent on month in December.

At the same time, input price inflation turned positive for the first time since August 2019. Input prices rose 0.2 percent from last year, reversing a 0.3 percent fall in November. But the rate was below economists’ forecast of +1 percent.

On month, input prices moved up 0.8 percent, faster than the 0.4 percent increase in November and the expected 0.7 percent.

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