First bump in falling inflation road arrives, as tobacco and air fares disrupt pattern of faster than expected inflation drops 17 January 2024 CPI inflation increased slightly in December to 4.0 per cent – driven by an increase in Tobacco Duty and rising air fares – though it remains below the Bank’s forecast path, the Resolution Foundation said today (Wednesday). While the reasons for the rise were UK specific, the arrival of the first bump in the lower inflation road follows a similar pattern to that seen across the US, Germany and France with a surprise rise in inflation in December, with CPI inflation rising to 4.0 per cent. The UK’s rate has moved closer to the US (3.4 per cent) and the Eurozone (2.9 per cent) in recent months, and is actually lower than the rate in France (4.1 per cent) having been significantly higher this time last year. Core inflation – a measure closely watched by the Bank of England – stayed at 5.1 per cent in December, the same rate as in November. The latest data should serve as a reminder that there are likely to bumps in the road in getting inflation back down to target, with another rise expected in January. But it does not change the big picture that inflation is still significantly below the Bank’s expectation of 4.6 per cent for the end of 2023. Lalitha Try, Economist at the Resolution Foundation, said: “The UK’s run of chunky of inflation falls has been ended by the surprise combo of Tobacco Duty and rising air fares. This serves as reminder that bumps in the lower inflation road are inevitable, but does not change the big picture that price rises are coming in much lower than the Bank of England expected as recently as November.”
