UK inflation climbed to 3.4% in December, primarily due to increased prices for tobacco and airfare. This uptick from the 3.2% recorded in November marks the first rise in the headline rate in five months, aligning with economists’ expectations of a gradual inflation increase.
Inflation, which tracks changes in the prices of goods and services over time, is monitored monthly by the Office for National Statistics (ONS). The ONS attributed the December surge to higher tobacco duty driving up cigarette prices and elevated airfare costs during the festive season.
Moreover, the ONS highlighted rising food expenses, particularly for bread and cereals, offset slightly by decreased rent and lower oil prices affecting raw material costs for businesses. Grant Fitzner, ONS’s chief economist, noted that the slight inflation rise in December was influenced by elevated tobacco prices due to recent excise duty hikes and increased airfares during the holiday period.
The annual increase in factory goods prices remained steady, while the rise in business raw material costs decelerated, influenced by lower crude oil prices. Inflation provides insight into how prices have changed compared to the previous year, with a 3% inflation rate indicating a £1 item last year would cost £1.03 currently.
The Bank of England targets 2% inflation and had raised interest rates gradually to curb inflation. Higher interest rates increase borrowing costs, reducing consumer spending and demand, ultimately lowering prices and inflation. However, the increased base rate led to higher mortgage payments for many homeowners, straining household finances.
Inflation surged to 11.1% in October 2022, driven by escalating energy and food expenses. The energy demand spike post-Covid, worsened by the Ukraine conflict, and higher food prices due to increased fertiliser and animal feed costs contributed to the inflation peak. Following a drop to 1.7% in September 2024, inflation began to rise again in October of the same year.
The ONS calculates inflation based on a basket of goods and services representing household consumption. While the main inflation figure provides an average, individual prices may vary around this figure in actuality.