UK inflation has jumped to 3.4% for the year ending in December, the first month-on-month increase in five months. This increase is a surprise to most economists, who expected a much smaller increase to 3.3%. The Office for National Statistics (ONS) published their provisional figures last week. They find that the acceleration was mainly due to rising tobacco prices – a relatively small part of the overall economy – and airfares.
The rise in inflation reflects a recent increase in tobacco duty implemented in late November, which has contributed to the overall cost of living. Here’s what caused airfare prices to skyrocket this holiday season. Part of this increase was due to the timing of return flights over Christmas and New Year. The ONS pointed out that this one seasonal factor was very likely the driving force behind the increasing costs in travel.
The Consumer Prices Index, the ONS’s main measure of inflation, covers a basket of goods and services that we all use every day. Things like bread, bananas, beds, and jackets are all included as well. Increases in food costs, especially bread and cereals have made the news as other upward drivers for inflation.
Chancellor Rachel Reeves has been clear that she wants to make every household’s cost of living lower, no matter where they live. In her November Budget, she responded by introducing a range of measures to relieve the pressure. These promised measures go little further than a freeze on rail fares and prescription charges.
“Money off bills and into the pockets of working people is my choice.” – Rachel Reeves
With the Bank of England’s next monetary policy meeting scheduled for February, decisions now need to be made about the future of interest rates. As the governor and state legislators prepare to make budget decisions, this month’s inflation figures will be critical. They happen to be the last monthly data we’re going to get before the next Fed meeting.
Economist Grant Fitzner from the ONS highlighted that while airfares contributed significantly to the inflation rise, food prices played a critical role.
“Rising food costs, particularly for bread and cereals, were also an upward driver,” – Grant Fitzner
Even with this disruptive surprise in inflation, some economic analysts are still broaching a cheerful possibility of recovery. Chancellor Reeves remained bullish on the nation’s trajectory, saying,
“There’s more to do, but this is the year that Britain turns a corner.” – Rachel Reeves