The rate of price increases rose again in December, official figures have confirmed, with inflation rising to 3.4%.
It’s higher than anticipated – an increase to 3.3% was forecast by economists polled by the Reuters news agency.
Data from the Office for National Statistics (ONS) showed the consumer price index (CPI) measure of inflation ticked up from 3.2% a month earlier.
Higher tobacco prices, due to raised taxes, and more expensive airfares are behind the increase, the ONS said.
Elevated food costs, especially bread and cereal, were also said to have brought overall inflation up. Food inflation rose to 4.5% in the key Christmas shopping month.
The overall inflation rate was kept in check as rent rises were not as steep as before.
Lower oil prices also helped slow the rise in the cost of raw materials.
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Falls to come
Looking ahead, inflation is expected to slow and could hit the Bank of England’s 2% target by April this year.
The rise recorded today is said to be a “temporary blip” by the Institute of Chartered Accountants in England and Wales (ICAEW), which is forecasting a drop to 2% by the summer due to expected lower energy bills in April.
What does it mean for interest rates?
That could mean an interest rate cut or two and cheaper borrowing as a result.
But the surprisingly high rise in inflation makes it even less likely interest rates will be brought down next month.
There has, however, been no change in core inflation, a measure that excludes volatile food and energy costs, which is closely watched by the rate-setters at the Bank of England.
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There’s also been only a slight increase in the rate of price increases in the largest part of the UK economy. Services inflation ticked up to 4.5% in December from 4.4% in November.
