Inflation remains at 2.7%
UK inflation was unchanged in December, despite increases in utility bills.
The Consumer Prices Index (CPI) stood at 2.7% in December, unchanged for the third consecutive month.
While some might be underwhelmed by this, Vicky Redwood, chief UK economist at Capital Economics, believes the breakdown is encouraging.
Price hikes in gas and electricity bills were widely expected to add around 0.3% to inflation, so the fact that this was offset by other factors to achieve the same overall rate is a positive.
Redwood says there was a fall in "core inflation" from 2.6% to 2.4%, because "sluggish consumer demand seems to have prompted retailers to discount a bit more heavily than last year over the festive period".
She does warn however that inflation could creep up to 3% in the near future after the January sales finish and predicts it will "probably stay relatively high for most of this year".
The Retail Prices Index (RPI) increased slightly in December to 3.1%, from 3% in November, also largely due to rising utility bills.
This article was written for our sister website Money Observer
Replaced as the official measure of inflation by the consumer prices index (CPI) in December 2003. Both the Retail Price Index and CPI are attempts to estimate inflation in the UK, but they come up with different values because there are slight differences in what goods and services they cover, and how they are calculated. Unlike the CPI, the RPI includes a measure of housing costs, such as mortgage interest payments, council tax, house depreciation and buildings insurance, so changes in the interest rates affect the RPI. If interest rates are cut, it will reduce mortgage interest payments, so the RPI will fall but not the CPI. The RPI is sometimes referred to as the “headline” rate of inflation and the CPI as the “underlying” rate.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).
The Consumer Price Index is the official measure of inflation adopted by the government to set its target. When commentators refer to changes in inflation, they’re actually referring to the CPI. In the June 2010 Budget, Chancellor announced the government’s intention to also use the CPI for the price indexation of benefits, tax credits and public sector pensions from April 2011. (See also Retail Prices Index).