- CPI rose from 3.2% to 3.4% in December
- Quirk in timing of flights measured meant airfares played a big part in the month’s inflation story, as did the timing of the tobacco duty hike
- But core inflation still stuck at 3.2% raises questions about the downward path
Danni Hewson, AJ Bell head of financial analysis, comments on the latest UK inflation figures:
“December’s inflation jump can be partially explained by the dates covered in today’s data capturing the airfares for many winter holiday makers.
“Whilst volatility in the prices of food or fuel is often expected, the timing of return flights to the UK from both long and short-haul destinations that were tracked by the ONS had a huge impact on December’s inflation figures.
“Few people want to be in the air on either Christmas Eve or New Year’s Eve, which were the comparable dates looked at in 2024. The most recent dates would have given passengers time to unpack and even get a wash on, ready to enjoy festivities in the comfort of their own homes.
“There was also the timing of last year’s Budget meaning the hike in tobacco duty was counted in the December data rather than the previous month, so the jump from 3.2% to 3.4%, although a little higher than many economists had forecast, isn’t particularly concerning.
“What does warrant closer attention is the stickiness of inflation, entrenched by high food prices and wage hikes that have filtered through to the service sector. Despite rising unemployment and a sluggish economic backdrop, concerns about that stickiness mean markets had already almost entirely priced out a February rate cut from the Bank of England.
“Today’s inflation figures haven’t changed that expectation and markets are still pricing in just one or two interest rate cuts over 2026, with the timing of those cuts still uncertain. But considering the current geopolitical climate and nerves about escalating trade tensions, few people would want to put money on what the economic backdrop might look like in six months’ time.
“For households, every story is different. Certainly, some government measures like freezing rail fares and prescription fees will help budgets in the coming months, but most will have a keen awareness of how sticky prices are when it comes to those everyday essentials.”
