UK CPI Inflation set to fall further in 2019

Consumer confidence both nationally and locally is not in a great place. Clearly the ongoing “political recession” isn’t helping the mood either. The good news, however, is that inflationary pressures continue to ease with the headline Consumer Price Index rising by 2.1% y/y in December.  That marks the weakest rate of consumer price inflation in almost two-years. Significantly this welcomed move is coinciding with wages rising at their fastest rate in a decade.

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Falling petrol prices were a key driver behind the latest downward move. Petrol price inflation slowed from 7.6% y/y in November to 1.5% y/y last month. Back in October prices were rising at 11.5%. This trend is set to continue with an easing in energy related inflationary pressures both in utility bills and petrol / diesel costs.

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Significant price cuts to gas and electricity bills are expected to be announced later this month. Similarly, home-heating oil customers should see further significant falls in the coming weeks and months. Petrol and diesel prices have already fallen by around 2% in the first two weeks of January. Food price inflation also slowed dramatically during 2018. Having started the year at 3.9%, annual food price inflation eased to 0.4% in December. What does or doesn’t happen with Brexit (supply disruptions etc) could have a major bearing on food prices in 2019.

In the near-term, CPI inflation looks set to fall below the MPC’s 2% target in January with the annual pace of consumer price rises set to slow to 1.3% / 1.4% by Q4 2019. Against this backdrop and given the growing risks of a global slowdown coupled with the near-term concerns surrounding Brexit, the Bank of England isn’t going to be in a hurry to raise interest rates. 2019 could well see the Monetary Policy Committee sit on its hands and keep its Bank Rate at 0.75%.

Pricing Status? It’s complicated

To listen to consumers and the media, you would think that price is all that matters. Whether it’s house prices, holidays, the latest bargains, mobile phone contracts or even the price of a pint of beer, all people seem to focus on is the cost. And in many cases, price is indeed key. Think back to when chocolate bar companies shrunk their products rather than raise their prices, or how big a deal some retailers make out of their Boxing Day Sales and Black Friday deals. However, price isn’t always all that matters for consumers. Price, and what we’re prepared to pay, it turns out, is a complex thing.

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Inflation tightens its grip on UK households

Shoppers will increasingly have noticed that the price of their groceries and the cost of filling up at the forecourt have been on the rise. Last month UK consumer price inflation, using the CPI measure, rose by 3% y/y.  This represents the fastest rate of increase since April 2012. Inflationary pressures are more marked within consumer goods (+3.2% y/y) rather than services (+2.7% y/y). Meanwhile the most comprehensive measure of inflation, the CPIH index which includes owner occupiers’ housing costs along with Council Tax (or rates in NI), nudged higher to 2.8% y/y in September. Continue reading