For a third month, the UK’s inflation rate decreased, but it stubbornly stayed in double digits, five times higher than the Bank of England’s desired objective, as reported by Bloomberg.
Price index increases
The Consumer Price Index increased 10.1% from a year earlier in January, which is the lowest increase since September. It was up 10.5% the month prior and at a 41-year high of 11.1% in October. The small slowdown to 10.3% was what economists had predicted.
The Fastest Rate-Hiking Cycle Since the 80s May be Ending
BOE Governor Andrew Bailey hopes that inflation will fall sharply this year as energy prices ease and the economy tips into recession.
While the BOE is concerned that a shortage of workers is pushing up wages and threatening an inflationary spiral, this month’s figures give policymakers room to wait before considering the next move on rates.
“Falling inflation may not be enough to change the course of monetary policy,” said Yael Selfin, chief economist at KPMG UK.
“Money markets pare rate hike wagers aggressively, pricing a 4.55% peak by September compared to 4.69% on Tuesday.
High inflation strangles growth and causes pain for families and businesses.”
The decline in the latest month was largely due to falling petrol prices along with easing price pressures in restaurants and cafes.
The UK’s Inflation Rate Fell As Fuel Prices Eased
According to customary New Year’s discounts, the price of furniture dropped more than it did at this time last year, according to ONS Chief Economist Grant Fitzner. “There are also signs that costs for businesses are rising more gradually, led by declines in the prices of crude oil, electricity, and petroleum. But overall company prices are still expensive, especially for steel and food products.
In the 12 months leading up to January 2023, core inflation, which excludes energy, food, alcohol, and tobacco, decreased to 5.8% from 6.3%. The BOE regularly monitors the services sector, where inflation dropped from 6.8% to 6%. Food prices increased by 16.8% and remained at a record high.
Food, Energy and Alcohol Prices Keep Climbing in the UK
Hugh Gimber, the global market strategist at JPMorgan Asset Management, said that while this morning’s report is a minor step in the right direction, the Bank of England still faces a very long trip to get inflation back to target. “UK activity will need to decline further to ease underlying inflationary pressures in the absence of a rapid recovery in labour supply.”
Low-income households were being severely hurt by inflation, according to a separate ONS report. They spent a larger percentage of their income on energy and food, which saw price increases of 11.3% over the previous year, above the 10% gain recorded by high-income households.
In the industrialised world as a whole, inflation has peaked, although it is still above average in the UK. In Germany, it is 9.2%, in France, 7%, and in the US, 6.4%.
Britain’s Inflation Problem Is Worse Than in US or Eurozone
The Bank of England expects rapid fall inflation over 2023 after the pullback in energy prices, reaching 4% by the end of the year.
That’s still double the 2% rate the BOE targets.
“In particular, the continued strength in more domestic measures of inflation will keep alarm bells ringing at the Bank of England.”
Factory gate prices also continued to cool, rising 13.5% in the 12 months to January from 14.6% the previous month.
Energy and passenger transport were given new weights in the ONS’s annual update of its shopping basket.
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Source: Bloomberg
