It was nice while it lasted, but the days of ultra-low inflation are over – at least for the time being.
The year ahead is going to be marked by rising prices and squeezed living standards, but the pickup in the cost of living needs to be put in perspective; January’s increase was smaller than expected, and the result of prices falling less sharply than they did a year ago.
Also, the UK was spoiled by a couple of years in which crashing oil prices flattered the inflation figures. Some bounceback was always likely in late 2017, and the upward trend has been exacerbated by the decision of the Opec cartel to cut production.
Britain is not alone in seeing prices start to rise. Germany currently has slightly higher inflation (1.9%) than the UK (1.8%), suggesting that the upward move over the winter has more to do with commodity prices than the fall in the pound following the Brexit vote last June.
That interpretation is supported by the Office for National Statistics data for core inflation, which strips out the impact of energy, food, tobacco and alcohol. This stood at 1.4% last June and is now at 1.6%. Over the same period headline inflation – which includes all the above items – has risen from 0.5% to 1.8%.
There is some evidence that competition is helping to keep the lid on prices. Clothing and footwear retailers had a pretty tough January and reduced prices by more than they did in early 2016. Without those high street and online bargains, the annual inflation…