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Inflation’s underwhelming drop in January highlights continued challenge

Author: ICAEW Insights

Published: 15 Feb 2023

Official data reveals that UK inflation slowed for the third successive month in January as fuel prices continue to fall – but there is some way to go before prices are under control.

The Consumer Prices Index (CPI) rose by 10.1% in the 12 months to January 2023 – the lowest rate since September 2022 and down from 10.5% in December. 

The inflation figures released on 15 February by the Office for National Statistics also revealed that core inflation – which strips out volatile items such as food, energy, alcohol and tobacco – stood at 5.8% in the year to January, down from 6.3% in the previous month.

The largest downward contribution to the change in the CPI annual inflation rate came from transport (particularly passenger transport and motor fuels), and restaurants and hotels, with rising prices in alcoholic beverages and tobacco making the largest partially offsetting upward contribution to the change.

The annual inflation rate for transport was 3.4% in January 2023, down for a seventh consecutive month from a peak of 15.2% in June 2022, and the lowest rate since February 2021. The main drivers behind the easing in the rate came from passenger transport services and motor fuels. Within the transport category, the largest easing effect came from passenger transport services. Prices rose 7.6% in the year to January 2023, down from 18.3% in the year to December 2022. Fuel prices rose by 7.7% in the year to January 2023, down from 11.5% in the year to December 2022. Average petrol prices fell 5.9 pence per litre (ppl) between December 2022 and January 2023 compared with a smaller monthly fall of 0.7ppl a year earlier. 

Restaurant and hotel prices also contributed to the easing in the headline rate. Prices rose 10.8% in the year to January 2023, down from 11.4% in the year to December 2022, which was the highest rate since September 1991.

On a monthly basis, UK CPI fell by 0.6% in January, compared with a drop of 0.1% in January 2022. The largest downward contribution to the change came from transport.

Responding to the latest UK inflation figures, Suren Thiru, Economics Director for ICAEW, says: “Although inflation has peaked, the pitifully small drop in January suggests we have a way to go before this unprecedented surge in prices is under control.

“While inflation may jump in April when energy bills rise and as government support is scaled back, a weakening economy and favourable base effects should mean that the headline rate is materially lower by the end of 2023.

“Concerns that inflationary pressures have become embedded should ebb away, with weakening labour demand and diminishing cash flow likely to increasingly limit the extent to which firms can continue to lift wages.”

For further information, read the ONS Consumer price inflation.

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