Underlying inflation suggests a turning point

Main points

• Underlying inflation increased to 0.5 per cent in the year to January 2021 from 0.3 per cent in December 2020, as measured by the trimmed mean, which excludes 5 per cent of the highest and lowest price changes (figure 1).
• At the regional level, underlying inflation was highest in Wales at 2.2 per cent and lowest in the South West, East Anglia, the North West, and Scotland which saw a 0.1 per cent decline in the year to January 2021 (table 1).
• 26.9 per cent of goods and services prices changed in January, implying an average duration of prices of 3.7 months, a much shorter duration than the long-term average of 5.1 months. 8.2 per cent of prices were reduced due to sales, 5.2 per cent fell for other reasons and 13.5 per cent recorded increases (figure 2).
• We expect that continued restrictions to stem coronavirus infections will keep consumer inflation relatively low in the short-term: NIESR has downgraded its forecast for UK economic growth in 2021 on the back of the lockdown imposed in January 2021, which is expected to have a larger effect on activity than the November lockdown.
• CPI inflation is likely to pick up in the second half of the year but stay below the Bank of England’s target of 2 per cent in the year to January 2022.

Janine Boshoff
Economist, Macroeconomic Modelling and Forecasting

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