Inflation hits highest level for almost a year


Inflation edged up to its highest level for nearly a year last month as a sharp rise in air fares over the Christmas holidays offset falling food and clothing prices.

But official figures showed inflation remaining at a historic low, with the Consumer Price Index (CPI) falling to zero over the whole of 2015 - the lowest annual reading since records began in 1950.

The Office for National Statistics (ONS) said CPI rose to 0.2% in December, up from 0.1% in November and the highest reading since January 2015.

Air fares soared by 46% between November and December due to the seasonal rise in flight costs over the festive season, marking the biggest leap for 13 years, with long-haul flights in particular impacted - although the ONS said inflation readings for flights can be volatile.

Prices on the forecourts continued to fall, with petrol down by 3.4p a litre, although this was less than the 6.1p drop seen a year earlier.

James Tucker, head of CPI at the ONS, said: "Today's small rise in CPI was mainly down to air fares and motor fuels, partially offset by falls in alcohol and food prices.

"While this modest rise takes CPI to its highest level for 11 months, it is still at historically low levels."

The figures come after oil prices briefly dropped as low as 27.69 US dollars a barrel this week, hovering around 13-year lows, which is expected to keep a tight lid on inflation.

Policymakers at the Bank of England predict inflation to remain far below the Government's 2% target for some time yet, with minutes of this month's interest rate meeting showing falling oil prices are set to keep CPI lower for longer.

This signals that the Bank will be in no hurry to raise rates above 0.5%, where they have remained for more than six years.

Financial markets are not pricing in a rate hike until the second quarter of 2017, having pushed back expectations amid plunging oil prices and fears over global growth, which have sent equities tumbling since the start of the year.

The inflation figures from the ONS show that food and non-alcoholic drinks dropped by 2.9% year on year in December, which was the biggest fall since March last year.

Food prices have been falling for more than a year and a half amid a supermarket price war sparked by competition from discounters Aldi and Lidl.

Last month also saw shoppers given a boost by another month of falling prices on the high street as the mild winter weather drove discounting ahead of Christmas.

Clothing and footwear prices fell by 1.3% between November and December and by 0.3% on an annual basis.

The ONS data also showed an uptick in the Retail Prices Index, a separate measure of inflation that includes housing costs, which rose to 1.2% in December from 1.1% in November.

A Treasury spokesman said: "Inflation at 0.2% continues the trend we've seen over the past year where low inflation, driven by falls in food and fuel prices, has supported family incomes and household budgets."

He added: "Given the uncertain backdrop presented by the global economy, it's vital we continue working through the plan that is delivering growth at home and security in the face of risks abroad."