Inflation unchanged at 3% - has it reached its peak?

Published by Helen Knapman on 13 February 2018.
Last updated on 13 February 2018

Inflation unchanged at 3% - has it reached its peak?

The Consumer Prices Index (CPI) measure of inflation remains unchanged at 3% in the year to January 2018, the Office for National Statistics’ (ONS) latest data reveals.

It follows last month’s fall in inflation from 3.1% to 3%, although this is still above the Bank of England’s 2% inflation target.  

Downward pressures on prices over the past year include motor fuels, which rose by less than they did a year ago.

The main upward effect on prices came from a range of recreational and cultural goods and services, in particular, admissions to attractions such as zoos and gardens, for which prices fell by less than they did a year ago.

Commenting on today’s figures, Maike Currie, investment director for personal investing at Fidelity International, says:After last week’s hawkish sentiment from the Bank of England at its Super Thursday meeting, which saw the Bank’s inflationary outlook for the next two years unchanged, many savers and investors will be wondering about the future direction of UK price rises. Could 3% mark the peak for inflation?

“The main driver behind rising prices has been the fall in the pound after the Brexit vote. However, the nature of currency-driven inflation is that it tends to be short-lived and self-correcting. 

“The other key factor to keep an eye on is wage growth. With our pay packets lagging price rises, we’re feeling progressively poorer as each month rolls by and this inevitably means we’ll spend less. Less spending keeps a lid on spending and in turn keeps prices low. Of course, if wage growth picks up this could change.”

Will inflation figures lead to interest rate rise?

Inflation has now been above the Bank of England’s 2% target for 12 months in a row.

Ben Brettell, senior economist at Hargreaves Lansdown says: “This adds further weight to the case for higher interest rates sooner rather than later. Bank of England policymakers said last week they’ll try and bring inflation back to target more quickly than previously expected, which means rates could rise faster and further than anticipated.”

The Consumer Prices Index including owner occupier housing costs (CPIH), which is the ONS’ preferred statistic remained unchanged at 2.7% in the year to January 2018.

Meanwhile, the Retail Prices Index (RPI) measure of inflation, which is no longer a national statistic but which is still used to calculate certain price changes, such as rail fares, fell from 4.1% to 4% in the year to January 2018. 

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