UK Inflation At 6-month High On Higher Petrol Prices

UK consumer price inflation rose more-than-expected in January, after easing in the previous month, to its highest level in six months, led by higher petrol prices.

The consumer price index rose 1.8 percent year-on-year following a 1.3 percent increase in December, preliminary data from the Office for National Statistics showed on Wednesday. Economists had forecast 1.6 percent inflation.

The January inflation rate was the highest since July, when prices rose 2.1 percent annually.

Meanwhile, core inflation which excludes energy, food, alcoholic beverages and tobacco, climbed to 1.6 percent in January from 1.4 percent in December. In November, it was 1.7 percent. Economists had forecast core inflation of 1.5 percent.

Inflation based on the CPI including owner occupiers’ housing costs (CPIH) climbed to 1.8 percent from 1.4 percent. This rate was also the highest since July.

Housing and household services, transport, clothing and footwear, and restaurants and hotels made upward contributions to inflation, while furniture, household equipment and maintenance; and food and non-alcoholic beverages acted as drags.

On a month-on-month basis, consumer prices decreased 0.3 percent, after remaining unchanged in the previous month. Economists had expected a 0.4 percent fall. The CPI decline was the first in three months. The core CPI fell 0.6 percent from the previous month.

“The rise in inflation is largely the result of higher prices at the pump and airfares falling by less than a year ago,” ONS Head of Inflation Mike Hardie said.

“In addition, gas and electricity prices were unchanged this month, but fell this time last year due to the introduction of the energy price cap.”

ING economist James Smith said the rising trend in inflation is unlikely to last and expects price growth to slow to 1.1-1.2 percent by June, driven by falls in household energy costs.

“[Bank of England] Policymakers will be looking for signs that rising business sentiment is translating into faster economic growth, although we think it would take a material deterioration in the economic backdrop for them to ease policy in the near-term,” Smith said.

In January, the central bank projected to remain below the 2 percent target throughout this year and then expect it to rise towards the target over 2021 and reach 2 percent in the first quarter of 2022.

ONS data also showed that output price inflation accelerated to 1.1 percent from 0.9 percent in December. Economists had expected 1 percent price growth. This was the highest rate since September.

The input price inflation climbed to 2.1 percent from 0.9 percent in December. Economists had expected a 0.1 percent fall. Crude oil remained the largest contributor to cost inflation, while other components also influenced.

The house price inflation rose to 2.2 percent in December from 1.7 percent in November. For the first time since February 2018, all regions have seen a positive annual growth rate, the ONS said.

London house prices logged its strongest growth since October 2017.

The ONS noted that the increased London house price growth may reflect a larger shift in the type of properties being sold than usual, with more sales of very high value properties.

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