Contrary to economists’ predictions of a slight acceleration, inflation in the UK remained stable at 4% in the 12 months leading up to January. This resilience was attributed to a decline in prices for furniture, household goods, and food and non-alcoholic beverages.
Surprising Stability Amid Forecasts
Reports had anticipated a marginal increase in inflation by approximately 0.2%, making the freeze in the annual inflation rate between December and January unexpected. The Office for National Statistics (ONS) highlighted a 0.6% month-on-month decrease in prices, mirroring the rate observed a year earlier.
Decline in Essential Costs
Notably, food and non-alcoholic beverage prices experienced their first month-on-month decline in over two years, transitioning from a 0.6% inflation rate to -0.4%. Additionally, reductions were observed in furniture and household goods prices, as well as clothing and footwear costs.
Impact of Retail Adjustments
Retailers, responding to sluggish Christmas sales, resorted to price reductions on leftover inventory, particularly on items appealing to homeowners. Danni Hewson of AJ Bell remarked on the positive effect of falling food inflation, alleviating other cost pressures for households.
Implications and Outlook
The consistent inflation figures suggest a gradual approach towards the Bank of England’s 2% target, potentially paving the way for a reduction in the current 15-year-high interest rate of 5.25%. While acknowledging progress, concerns persist regarding the enduring impact of the cost of living crisis, particularly for low-income individuals. Chancellor of the Exchequer Jeremy Hunt expressed confidence in the government’s strategy, citing the forecasted decline in inflation as evidence of success.
SOURCE: Ref Image from Financial Times
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