CPI inflation dropped back to 3% in December, down from 3.1% in November, according to the latest official figures from the ONS.
Laith Khalaf, Senior Analyst, Hargreaves Lansdown:
‘The fall in CPI suggests the weak pound is starting to work its way out of the inflation equation, though it’s not yet enough to significantly ease the pressure on UK household spending.
That’s because as things stand, wages are still rising by less than the rate of inflation, and significantly below price rises in essential items like food and energy, which over the last year have risen by 4.1% and 6.3% respectively.
Higher prices are more tolerable if wages are rising by a commensurate amount, and there has been some positive momentum on this front recently, albeit from a low base. Next week’s labour market statistics are therefore now in focus, to see if wages are finally catching up with inflation.
A sustained trend of falling inflation and better wage growth could spell happier times for the UK consumer, and the UK economy. There is an inflation risk in the form of a resurgent oil price, which now stands at around $70 a barrel, up from $55 at the beginning of last year. However the effect of sterling devaluation looks to be dissipating, and that is likely to be the dominant factor in the near term. Brexit plays a part in all this of course, with progress likely to support sterling, and setbacks to knock it.’