UK inflation increased to 3.4% in December, primarily driven by higher prices for tobacco and airfares. This uptick from the 3.2% recorded in November marks the first rise in the headline rate in five months, in line with expectations from most economists.
Inflation reflects changes in the prices of goods and services over time, with monthly data provided by the Office for National Statistics (ONS). The December surge was attributed to a rise in tobacco duty, leading to increased cigarette prices, as well as elevated airfare costs during the holiday season.
The ONS highlighted increased expenses for certain food items like bread and cereals, partly offset by a decline in rental prices and lower oil costs impacting raw material prices for businesses.
Grant Fitzner, the ONS’s chief economist, noted the drivers behind the December inflation rise, including higher tobacco and airfare prices, along with increased food costs. Factors like lower rents and reduced prices for recreational and cultural goods partially balanced out the inflationary pressures.
Inflation provides insight into how prices have changed compared to the previous year. When inflation decreases, it doesn’t indicate a halt in price increases but rather a slower rate of ascent. Conversely, deflation occurs when inflation drops below 0%.
The ONS calculates inflation based on a continually updated “basket of goods” representing typical household purchases. The headline inflation figure serves as an average, with individual prices of goods potentially deviating from this overall rate.
The Bank of England targets 2% inflation and has adjusted interest rates to manage inflation levels. Higher interest rates can curb spending, reducing demand and subsequently lowering inflation. However, increased rates can strain households, particularly impacting mortgage payments.
In 2021, inflation started to climb, peaking at 11.1% in October 2022, driven by escalating energy and food costs. Energy demand surged post-Covid and worsened with the Russian invasion of Ukraine, impacting food prices due to heightened input costs.
After hitting its lowest point in three years at 1.7% in September 2024, inflation began to rise again in October of the same year.