January Inflation In The UK Highest In The Past Six Months, According to Official Data

• The inflation rate crossed 1.8% in the month of January, exceeding forecasts of 1.6%.
• The rate is still below the target inflation of 2% as set by the central bank.
• Experts believe households may find it more difficult to manage finances, even if inflation rates are below the target level.

As per officially reported data, the UK’s inflation rate rose to its highest point in six months during the month of January, prompted by higher prices of petrol and housing, and a smaller-than-expected reduction in airfares.

The CPI, or the Consumer Price Index, reported in January was at 1.8%, slightly higher compared to the 1.3% reported a month earlier. The increase is also higher than the 1.6% CPI that economists had predicted for the month of January, although it is still below the target inflation level of 2% that has been set by the Bank of England.

As a result of the higher-than-expected inflation rate, the value of the pound crossed $1.30. On Wednesday, the pound had started with a 0.25% decline against the Euro, however, it flattened towards the end of business hours.

Speculations arose that such a high inflation rate could influence the interest rate decisions to be taken by the central bank in the month of March, however, experts believe it is unlikely to have any significant impact on it.

Although current inflation rates may be below the target levels as set by the central bank, the increase reported in January could indicate a stronger financial pressure on households in the UK.

According to the Bank of England, the rate of inflation is expected to remain below 2% during 2020. The third quarter is expected to report the lowest rate of 1.2%. Also, the current rate has been influenced by a surge in housing prices witnessed since December 2019, after PM Boris Johnson won the election, which indicated that investor confidence in the economy has regained momentum.

Ruth Gregory, who works at a consultancy called Capital Economics as a senior economist, believes that as long as inflation rates remain within the expected 2% target set by the central bank, it is unlikely to make any amendments to its interest rate outlook.

Rishi Sunak, the UK’s new finance minister who has replaced Sajid Javid, reported that families were better off due to low inflation and strong growth in wages that had sustained over the previous 18 months.

According to reported data, fuel prices increased by around 4.7% on a yearly basis, the biggest increase since November of 2018. There was no change in prices reported for gas and electricity, which had fallen during the same time last year due to a new energy price cap that was introduced at that time.

The core inflation rate stood at 1.6% in January, which does not take into consideration changes in the prices of fuel, tobacco, alcohol, and energy. In December 2019, the core inflation rate was 1.4%.

The reported data also revealed increases in consumer prices. In January, manufacturers paid 2.1% more in the cost of raw materials on a YoY basis, the highest increase since the month of April 2019. Most of this increase stemmed from an increase in the prices of precious metals, especially palladium that is used by car manufacturers in catalytic converters.