Headline Inflation Rises To Highest Point In Nearly A Year

The latest ONS data shows that UK inflation has hit a ten-month high.

Main points:

• The Consumer Prices Index including owner occupiers' housing costs (CPIH) rose by 3.9% in the 12 months to January 2025, up from 3.5% in December 2024.
  
  
• On a monthly basis, CPIH was little changed in January 2025, compared with a 0.4% fall in January 2024.   
  
  

• The Consumer Prices Index (CPI) rose by 3.0% in the 12 months to January 2025, up from 2.5% in the 12 months to December 2024.

• On a monthly basis, CPI fell by 0.1% in January 2025, compared with a 0.6% fall in January 2024. 

• The largest upward contribution to the monthly change in both CPIH and CPI annual rates came from transport, and food and non-alcoholic beverages; the largest downward contribution to both came from housing and household services.

• Core CPIH (excluding energy, food, alcohol and tobacco) rose by 4.6% in the 12 months to January 2025, up from 4.2% in December 2024; the CPIH goods annual rate rose from 0.7% to 1.0%, while the CPIH services annual rate rose from 5.4% to 5.8%.

• Core CPI (excluding energy, food, alcohol and tobacco) rose by 3.7% in the 12 months to January 2025, up from 3.2% in December 2024; the CPI goods annual rate rose from 0.7% to 1.0%, while the CPI services annual rate rose from 4.4% to 5.0%.

Commentary

British Retail Consortium

Responding to the latest CPI inflation figures, which show headline inflation rising to 3.0% and food inflation rising 1.3 percentage points to 3.3%, Kris Hamer, Director of Insight of the British Retail Consortium, said:

Headline inflation rose to its highest point in almost a year, driven by rising food inflation and air fares. While the inflation rate of clothing and footwear increased, extensive discounting by retailers saw prices decreasing significantly on the month. The same was true for furniture and household equipment, which despite decreasing in price on the month, returned to inflation for the first time in ten months. Food inflation jumped significantly as retailers anticipated significant additional costs such as the changes to Employers’ National Insurance and increases to the National Living Wage, coming into force in April. There was however some good news as some key foods such as pasta, potatoes and olive oil did drop in price on the month. 

A rise in the headline rate of inflation to start 2025 is likely a sign of things to come given the £7 billion worth of additional costs the retail industry is facing this year. Prices are expected to rise across the board over the course of the year. If the government wishes to keep inflation under control, which would ease the burden on consumers, it should mitigate the huge cumulative costs facing the retail industry. Speeding up business rates reform or delaying new packaging taxes would help ease the pressure on prices for the rest of 2025.

CBI

Martin Sartorius, Principal Economist, CBI, said: 

“The stronger-than-expected rise in inflation in January highlights the challenges facing the Monetary Policy Committee as they seek to rein in persistent price pressures. Higher energy prices, strong wage growth, and the impact of Autumn Budget measures are likely to keep inflation above target this year.

“While we still expect a gradual, quarterly pace of rate cuts throughout 2025, this inflation surprise raises the possibility that the MPC might tread even more carefully as it looks to reduce borrowing costs.”

PWC

Commenting on the Office of National Statistics Consumer Price Index for January 2025, Adam Deasy, Economist at PwC, comments:

“After a surprise drop last month, inflation is back on the up. Headline CPI came in at 3.0% for January 2025, its highest level for 10 months and up from 2.5% at the end of 2024. Some of the key drivers were predictable, such as the imposition of VAT on private school fees driving up the education component, but this reading still comes in higher than consensus expectations of 2.8%. Transport and food prices were the largest upward contributors. 

“Services inflation is back in the spotlight, rising to 5.0% after falling in December. Largely to blame are volatile components like airfares, which saw unusually small January drops after weaker growth in the festive period. However, goods inflation increasing to its highest level since February 2024, off the back of wage growth coming in hot yesterday, is an unwelcome reminder that inflationary pressures persist across the economy.

“Although the rise in prices won’t make for pleasant reading, the Bank of England saw this coming to some extent. The February MPC report set out their expectation of services inflation coming in just above 5% for January and the prospect of further rises will reinforce their stance on loosening monetary policy ‘gradually and carefully’. It all comes down to timing, and a March cut is likely a touch too soon—today’s inflation print is a speed bump in the road to lower rates.” 

Source : ONS; BRC; CBI; PWC

Image : Dilok Klaisataporn / iStock / 1414982888

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