Today’s inflation figures from the Office for National Statistics show the headline (CPI) rate falling slightly to 3.0% in November from 3.1% in December. The main contributor to the monthly fall was a decline in transport costs, particularly airfares.
Inflation falls slightly to 3.0%
Commenting on the data, Richard Stone, Chief Executive at The Share Centre said:
Inflation fell very slightly in December to 3.0%. This is still 1% above the target rate of 2.0% and it will be useful to see the letter the Governor wrote to the Chancellor back in November when inflation hit 3.1% and which will be published in February.
Inflation has remained relatively static since April 2017 when it rose to 2.7%. Since then it has been in the range 2.7-3.1%. Policy makers will be keen to see whether November marked a peak with inflation now starting to fall or whether it continues to remain stubbornly within this range. Much will depend on what happens to wages and inflation expectations – the concern being that higher inflation becomes baked into the system through higher wages. Evidence of such a shift would likely lead policymakers to increase interest rates more quickly.
Oil prices have risen steadily over recent months and this is likely to feed through into inflation in due course. In the short term this has been partially offset by Sterling’s strength against the dollar – recovering much the fall it experienced following the Brexit vote. Any weakness in Sterling again would exacerbate the impact of higher fuel prices and could drive inflation higher – or at least mean it remains stubbornly at current levels.
For personal investors, the reality of negative real wage growth continues to make finding disposable income to save and invest challenging. The market has initially responded to this latest set of inflation data positively as it has the potential to imply that November was the peak for inflation at 3.1% and therefore further imminent rises in interest rates may be less likely. The FTSE 100 has hit a number of record highs already during 2018 and is continuing that upward path supported in part by the continuation of relatively accommodating monetary policy.