Surprise January 2025 Inflation Increase to 3.0% pa

After last month’s surprise, yet small fall in Consumer Prices Index (CPI) inflation by 0.1% to 2.5%, we appear to have received a ‘double whammy’ increase of 0.5% pa to 3.0% pa in January (we suggest a combination of the expected rise in December added to January’s figures.

The Office for National Statistics (ONS) has this morning released inflation figures for the UK for January 2025 and the climb was higher than expected but with pressure on energy bills, firms increasing pricing to cope with the coming National Minimum and Living Wage increases as well as the massive hike in employers National Insurance Contributions to 15% and the threshold at where it is paid reduced from £9,100 to just £5,000 (when employees only pay NIC from £12,570 per year), it is no surprise that inflation is on the up.

Food ‘essentials’ such as bread, cereals, eggs, and meat are up as well as private school fees having VAT added from 1 January 2025, is putting pressure on us all again.

This is a highest inflation rate in 10 months with concerns that ‘Trump tariffs’ across the globe with mean a tariff war, pushing prices up around the globe.

In the UK, all cost sectors are up but rises in some sectors are rising faster whilst rises in other sectors are slowing down:

• Transport costs are rising even faster and up an additional 0.32% since December.
• Food and non-alcoholic costs are rising even faster and up an additional 0.15% since December.
• Education costs are rising even faster and up an additional 0.08% since December.
• Recreation and culture costs are rising even faster and up an additional 0.06% since December.
• Furniture and household goods costs are rising even faster and up an additional 0.06% since December.
• Clothing and footwear costs are rising even faster and up an additional 0.03% since December.

Whereas, whilst costs are all still going up, the price increase rate is slowing down in other sectors:

• Restaurants and hotel costs are rising slower with rate rises down 0.01% since December.
• Health costs are rising slower with rate rises down 0.01% since December.
• Alcohol and tobacco costs are rising slower with rate rises down 0.01% since December.
• Miscellaneous goods and services costs are rising slower with rate rises down 0.06% since December.
• Housing and household services costs are rising slower with rate rises down 0.12% since December.

No doubt prices were reduced for the festive season with ‘Black Friday’ sales and more people socialising, but prices are back up now and pressure is on them to rise even further.

RPI Up by 0.1%

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) and still our preferred measure of real inflation, only climbed slightly to 3.6% pa and is now back to summer 2024 figures.

Comment

Last month, we suggested the Bank of England had some room for an interest rate cut on 6^th February and indeed rates were cut by 0.25% to 4.50% pa. We do not believe there will be another rate cut ‘next time out’. 

We repeat, ‘recession here we come’ but make no mistake, whilst headlines may be “Disappointed of Dumpton”, governments’ need inflation to collect higher taxes and devalue massive public sector debt at 3.0% pa which is higher than trend/target 2.0% pa inflation.  Apart from protecting US businesses, could it be that Trump ‘policy’ on tariffs is also to increase US costs/inflation that then devalues their massive government debt?  Is it the same in the UK with the government needing to borrow even more than anticipated as well as the UK and Europe now needing to borrow even more to urgently spend on defence and rearmament at a faster pace?

Key dates for us all:

• Next Bank of England MPC interest rate decision 20 March 2025.
• Next ONS inflation report 26 March 2025 which, interestingly it is also Chancellor Rachel Reeves’ Spring Statement Day (mini-Budget).