The Office for National Statistics (ONS) has today released inflation figures for December 2022. UK inflation fell back slightly again in December by 0.2% pa. This was down to transport and petrol, clothing and footwear, and recreation and culture costs falling but housing and household services from electricity, gas, and other fuels, and food and non-alcoholic beverages still high.
Consumer Prices Index (CPI)
UK Consumer Prices Index (CPI) are still double digit at 10.5% pa down from 10.7% pa (November 2022) and 11.1% pa (October 2022) to). This is not a big enough fall when compared to USA inflation now at 6.5% pa (the Federal Reserve has been more aggressive with interest rates) and so we do expect further Bank of England interest rate rises on 2nd February 2023.
Old Inflation Measure - Retail Prices Index (RPI)
The old measure of inflation RPI, an arithmetical mean of the average prices of a basket of household spending (rather than the geometric mean for CPI), remained high at 13.4% pa for December 2022 but is now falling away from 41-year highs of 14.2% pa (October 2022) and 14.0% (November 2022). Only small progress so far and still 0.8% pa higher than 12.6% pa in September 2022. We have a long way to go.
The panic in 2022 that inflation could hit 18% pa in 2023 has subsided but further interest rate increases are still needed to get CPI back to the government’s trend growth target of 2.0% pa. We have suggested many times that this period of high inflation could be around for another 5 years despite the Bank of England suggesting we will back on target within 2 years. Never forget, a period of high inflation devalues fixed rate government debt (gilts) over the years meaning that when the government comes to repay its covid-19 and cost of living support debts.