CPI Inflation stays at 5.1% in December

The inflation rate was 5.1% in December, still well above the Bank of England’s 2.0% target.

However this seemingly isn’t the worst news for the Bank’s Monetary Policy Committee, as the rapid increases to inflation have at least ground to a halt.

Research consultancy Pantheon Macroeconomics reckons the Bank will raise the base rate from 0.25% to 0.50% in March. If the prediction is correct that means the MPC will hold fire on raising the rate in February.

The inflation rate was driven up by food inflation, which rose to 3.7% in December, from 2.5% in November.

On the flipside motor fuel CPI inflation declined from 28.5% to 26.8%, while clothes inflation fell back from 3.5% to 2.5%.

Economists Samuel Tombs and Gabriella Dickens for Pantheon Macroeconomics said: We doubt that December’s CPI report will trigger a further rise.

“Looking ahead, we expect the headline rate to average 5.1% in Q1, as further increases in core goods prices are countered by a decline in motor fuel inflation.

“And while CPI inflation likely will top 6% in April, when Ofgem will increase its default tariff price cap… the headline rate then should ease to about 4% by the end of the year, as price increases fail to keep up with the rapid rate seen after the economy emerged from lockdown last year.

“Accordingly, the MPC needn’t panic; we look for only two 25bp rate hikes this year—in March and August—rather than the four expected by investors.”

The base rate impacts the cost of mortgage and savings rates across the financial system.

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