Annualised inflation increased to 4% in December, up from 3.9% in November, in contrast to a larger than expected drop in the month prior.
Measured by the Consumer Prices Index (CPI), this uptick was primarily driven by rises in the price of cigarettes and alcohol and defied forecasts for annualised inflation to come in at 3.8%.
Meanwhile, core inflation, which takes out volatile factors like energy, food, alcohol and tobacco to give a clear picture of underlying trends, stood at 5.1% in the 12 months to December 2023, the same as in November.
Alpesh Paleja, CBI lead economist, said: “Today’s inflation figures show it isn’t ‘job done’, despite coming after last month’s sharper-than-expected fall. Indeed, risks to the inflation outlook remain very much to the upside.
“In the near-term, Ofgem’s lifting of the energy price cap in January will likely lead to a small bump in the CPI rate. And there are now renewed risks from tensions in the Middle East, through their potential impact on supply chains and commodity prices.
“Notwithstanding signs of a moderation in wage growth, the Bank of England will also be watching for more persistent cooling of domestic price pressures, in order to be more reassured about the inflation outlook. So, while all eyes are focusing on the timing of cuts to interest rates, it may still prove soon to start reducing the cost of borrowing.”
