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Inflation dips to 3% as indicators suggest peak passed

Inflation dips to 3% as indicators suggest peak passed

Consumer price inflation dipped from 3.1% to 3% in December as a series of major contributory factors appeared to reinforce initial hopes that the effect of 2016’s sterling slump were falling away.

While the headline drop was in line with consensus, the decline in ‘core’ CPI - which strips away the most volatile elements - from 2.7% to 2.5% was lower than the median forecast of 2.6%.

The month-on-month fall was primarily due to a near-halving of air-fare inflation, from 0.29% to 0.16%.

But other currency-sensitive measures, such as food and core goods, suggested that the impact of a 20% devaluation in sterling over the year to November 2016 was beginning to retreat.

The rate of food inflation fell from 4.1% to 3.9% while core goods inflation held steady at 2.5%, down from a recent peak of 2.8% in August.     

‘Services inflation excluding airline fares as well as education and rents—which are influenced by government policies—fell to 2.8% in December from 3.2% in November, well below the 3.7% average of the 1997-to-2007 period,’ said Samuel Tombs of analyst Pantheon Macroeconomics.  

‘The continued weakness of underlying price pressures means that the [Bank of England’s] monetary policy committee has little need to rush the next rate hike.’

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