U.K. inflation eased for the first time in six months in December, thanks to the cost of air fares as well as games and toys.
The decline took the rate to 3 percent from 3.1 percent in November, which was the fastest in more than five years. A core measure of consumer-price growth slipped to a five-month low of 2.5 percent.
The pound weakened after the data were published and was trading at $1.3772 as of 9:37 a.m. in London, down 0.2 percent on the day.
The figures may be the start of a turning point for inflation as the effect of the pound’s depreciation following the 2016 Brexit referendum starts to fade. Economists and the Bank of England forecast a slowdown this year, with the latter predicting a 2.4 percent level at the end of 2018.
The decline in December was largely driven by a technical reweighting of airfares in the inflation basket. The Office for National Statistics said it’s too early to say if the move is the “start of any longer-term reduction in the rate.” Services inflation slowed to 2.5 percent in December, the weakest in nine months.
An inflation slowdown would bring relief to households who have seen their pay fail to keep up with price increases. Still, economists surveyed by Bloomberg see growth in household consumption weakening this year and only improving slightly in 2019. It will remain below its recent average in both years.
While headline inflation is predicted to cool, what matters for Bank of England policy makers is the development of domestic price pressures coming from low unemployment and a squeeze on supply. The bank raised interest rates in November for the first time in a decade and said more hikes may be needed in the coming years.
Source : Bloomberg