UK inflation increased to 3.4% in December, primarily due to higher prices for tobacco and airfare. This was a rise from the 3.2% recorded in November, marking the first uptick in the headline rate in five months, as most economists had anticipated a slight rise in December.
Inflation, a measure of the changes in prices of goods and services over time, is reported monthly by the Office for National Statistics (ONS). The December uptick was attributed to higher tobacco duty leading to increased cigarette prices and elevated airfare prices during the holiday season.
The ONS also highlighted increased costs of certain food items like bread and cereals, partially offset by a decrease in rent and lower oil prices affecting raw material costs for businesses. Grant Fitzner, the chief economist at the ONS, noted that the rise in inflation was influenced by higher tobacco prices following excise duty hikes and increased airfare prices during the festive period.
Moreover, he mentioned that rising food costs, particularly for bread and cereals, also contributed to the upward trend, which was mitigated by lower rents and reduced prices for various recreational and cultural items. Factory prices remained stable, while raw material costs for businesses moderated due to lower crude oil prices.
Inflation indicates how much more expensive items are compared to the previous year. When inflation decreases, it does not mean prices have stopped rising but rather that the rate of increase has slowed. If prices were to decline, it would indicate deflation, where inflation falls below 0%.
The Bank of England targets a 2% inflation rate, adjusting interest rates to manage inflation levels. Higher interest rates increase borrowing costs, leading to reduced spending, lower demand, and subsequently, lower inflation. However, the recent base rate of 0.1% in December 2021 had stretched household finances due to increased mortgage payments.
Inflation began to rise in 2021, peaking at 11.1% in October 2022, driven by higher energy and food costs. Following the Covid-related surge in energy demand and the Ukrainian conflict, food prices escalated due to increased expenses for fertilizers and animal feed.
Although inflation hit a three-year low of 1.7% in September 2024, it started to climb again in October 2024. The ONS calculates inflation based on a selection of goods and services representing typical household purchases, with the headline figure reflecting an average that may vary for individual items.
By selecting Daily Mirror as a ‘Preferred Source’ on Google News, readers can access their preferred news content promptly.