Is price inflation on the rise?

Is price inflation on the rise?Price inflation in the UK, as measured by the Consumer Prices Index (CPI), was on the rise in the year to January.

CPI inflation reached a twelve month high at 0.3% for the year.

This was in part due to smaller falls in the price of food and fuel compared to a year earlier.

It is still a long way below the Bank of England inflation target of 2%, which expects price inflation to stay below 1% for the rest of this year.

The latest price inflation figures represent the third consecutive month during which price inflation has risen.

Commenting on the latest rise in price inflation, Maike Currie, investment director at Fidelity International said:

“Today’s small uptick in UK prices to a still weak, 0.3% – the level last seen in January 2015 – was broadly in line with expectations.

“A rise in the cost of motor fuels, and to a lesser degree the price of food, alcohol and clothing were the main contributors to today’s rise.

“Don’t be fooled by the incremental rises we have witnessed in recent months – inflation is still a far cry from the Bank of England’s target rate of 2%.

“Deflationary forces are likely to continue to sweep the globe and batter equity markets, as a slowdown in the emerging world and the global manufacturing sector puts a dampener on demand.

“Meanwhile larger structural changes in the form of an aging population and the automation of the workforce, are two further factors likely to keep a lid on prices.

“Of course, no-one is going to complain about falling prices – it boosts the value of the pound in our pocket. But while we’re gaining as consumers, we’re losing out as investors.

“There are also some indications that employers are using low inflation to limit wage increases.

“Persistently weak inflation means there is little incentive for the Bank of England to raise interest rates and this means those who have been prudent with their money – i.e. investors and savers, need to find alternative ways to secure better returns.

“With rates likely to stay lower for longer, investors will continue to view equity income as a safe haven and a rare source of yield.”

Whilst we experienced a rise in the CPI measure of price inflation today, core inflation fell slightly.

Core inflation measures the long run trend in prices, excluding items frequently subject to volatile prices, like food and energy.

Core inflation fell from 1.4% to 1.2 % in the twelve months to January, with TUC General Secretary Frances O’Grady commenting:

“Continuing low inflation is a sign that the economy is not operating at full strength.

“With the global economy slowing down, the government must do more to support stronger growth.

“We need investment in skills, infrastructure and public services to promote growth for the long-term.”

Where do you think price inflation is heading next? Do the price inflation figures published today suggest interest rates will rise later this year?

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About Martin Bamford

Martin Bamford is a Chartered Financial Planner, Certified Financial Planner (CFP) professional and published personal finance author. He works with elderly clients to provide advice on funding residential care fees, hosts the Informed Choice Podcast and is a keen ultra runner.
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