Inflation falls for third consecutive month

Inflation fell for the third consecutive month, but remains in double figures according to the publication today (15th February) of the January Consumer Price Index (CPI).

The ONS reports that the average prices in January of a range of common consumer purchases now stands 10.1% higher than in January 2022. This latest figure represents a 0.4 percentage point fall on December’s inflation figures, with prices down 0.1% month-on-month.

As in previous months, the largest contributor to the slowing rate of inflation was continued fall in transport and motor fuel prices. Prices at the pump, although still above prices seen this time last year, fell on the previous month, while public transport costs also fell significantly with the temporary introduction of £2 local bus fares across the UK (a permanent £2 price cap on single fares was already in place in Greater Manchester as part of bus franchising plans).

Falling petrol and diesel prices however were offset by continued increases in prices for food and drink, with prices 16.8% higher than in January 2022.

The continued fall in the rate of inflation recorded by the ONS in the UK mirrors the picture in other major economies. The US, Germany and Italy (the only G7 economy with a higher rate of inflation than the UK) have also see sustained falls in the rates of inflation; France (where more aggressive government intervention on energy bills has seen inflation cap out at just 7%) has also seen inflation stabilise in recent months.

The slight fall in inflation follows the decision by the Bank of England to continue to raise interest rates, most recently to 4%. While inflation remains far above the Bank’s 2% target, the sustained fall in the rate of inflation may discourage further sharp rises from the UK’s central bank, given the pressure of rates rises on borrowers, in particular, mortgage-holders.

Current estimates expect interest rates to reach highs of 4.5% later this year, with inflation expected to fall back to between 4% and 5% by the end of 2023.