Inflation Sticks For Third Month Running

UK inflation as measured on the consumer prices index (CPI) held at 2.7 per cent for the third consecutive month in December, while producer prices dipped below forecasts, as the predicted utility bills hike was offset by lower fuel costs.

Air fares pushed inflation down, as flight prices rose at half the rate seen a year earlier, while petrol prices fell by 2.8p per litre between November and December 2012, compared with a fall of only 1.1p a litre in 2011.

The cost of food was another upwards pressure on overall prices, with prices up 1.2 per cent against November. Clothing and footwear dropped by 1.5 per cent, but that was less than the larger fall of 2.8 per cent the year before.

The latest figures from the Office for National Statistics (ONS) also showed that the retail prices index (RPI), which include housing costs and is seen by many as a better indication of the cost of living, rose slightly in December to 3.1 per cent from 3 per cent in November.

While the figure is still well above the Bank of England’s target rate of 2 per cent, it is still unclear whether the figure will rise before it falls again or whether it will fall at all in the near future.

In fact, the central bank’s latest quarterly forecasts, released in November, showed inflation peaking in the third quarter of 2013, falling below the target only in 2014.

However, what is clear is that stubborn inflation is likely to have been a key argument against more quantitative easing at the Bank’s monthly policy meeting last week.