December CPI inflation over 5.2%, dashing hopes of RBI rate cut

Inflation peak? Some analysts believe CPI eased back last month

Consumer price inflation based on the consumer price index (CPI) hit a 17-month high of 5.12 per cent year-on-year in December, showing a rising trend, partly due to the effect of a lower base in the wake of last year's demonetisation.

Consumer prices rose 3% on year in December, the Office for National Statistics said Tuesday, compared with a rise of 3.1% a month earlier.

"This, along with the solid retail sales report for the same month, supports our expectation for a March rate hike by the Fed", said Jennifer Lee, senior economist at BMO Capital Markets.

However, with the impact of the pound's drop falling out of the annual data, many economists expect a steady decline in inflation this year toward the Bank of England's target of 2 percent.

In the December review, RBI had increased its inflation forecast in the range 4.3-4.7 per cent in Q3 and Q4 from 4.2-4.6 percent estimated in the October review.

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Inflation rose sharply in the wake of the June 2016 Brexit vote due to the record slump in sterling on the night of the referendum, which fed through to higher import costs.

CPIH, which the ONS are now using as their headline measure and which includes owner occupiers' housing costs, was 2.7% in December, down from 2.8% in November.

"Thomas Wells, manager of the Smith & Williamson Global Inflation-Linked Bond fund, added: "In terms of the UK's inflation outlook from here, the recent strengthening of the pound versus the dollar will help to mitigate inflationary pressure to some extent and should help to mean that, over 2018 as a whole, inflation will slowly begin to move back towards the Bank's target".

Food price inflation for rural areas stood at 5.08 per cent in December 2017 against 4.1 per cent in November and 4.35 per cent in December 2016.

Compared with November past year, outstanding price falls in last month included fresh vegetables, down by 6.4 percent; culture and entertainment, down by 1.3 percent; and furniture and household equipment, down by 1.1 percent. "These downward contributions were partially offset by prices for motor fuel, which increased between November and December 2017, having fallen a year ago".


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