UK inflation surprises with jump to highest in 30 years

London

BRITAIN'S inflation rate surged unexpectedly to the highest since 1992, adding to pressure for the Bank of England to respond with another boost for interest rates.

Consumer prices surged 5.4 per cent from a year ago in December after a 5.1 per cent gain the month before, the Office for National Statistics said on Wednesday (Jan 19). Economists had expected the pace of increases to stick to 5.2 per cent.

Bank of England policymakers are concerned that inflation may top 6 per cent in the first half of this year, triple their target. That's fanned speculation of a rapid cycle of tightening for monetary policy after the BOE last month delivered the first increase since the start of the pandemic.

The monthly increase was driven by food and non-alcoholic beverages, restaurants and hotels, furniture and household goods, and clothing and footwear. That suggests price gains have moved beyond energy, which is due to hit consumer bills again starting in April. The cost of transport and motor fuels also gained, adding over 1 percentage point to the annual rate of inflation.

"Food prices again grew strongly, while increases in furniture and clothing also pushed up annual inflation," said Grant Fitzner, chief economist for the ONS.

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"These large rises were slightly offset by petrol prices, which despite being at record levels were stable this month, but rose this time last year."

The retail price index, used to set payouts on gilts and for pricing public services including train fares, surged 7.5 per cent from a year ago, the most since 1991. That's more than the 7.1 per cent pace that economists had expected.

In one encouraging sign, pipeline price pressures appeared to ease in December. The cost of fuel and raw materials used by factories unexpectedly fell, and prices charged rose less than forecast.

Core CPI, which excludes energy, food and other volatile items, accelerated to 4.2 per cent, the highest since 1992. Inflation averaged 4.9 per cent in the fourth quarter, higher than 4.3 per cent forecast by the Bank of England. For December alone, the BOE had predicted a rate of 4.5 per cent.

"We've not seen the end of rising inflation yet," said Alpesh Paleja, lead economist at the CBI, Britain's biggest employers group.

"With prices on the rise and real wages already falling, it's likely households will face a cost-of-living crunch."BLOOMBERG