Core Inflation Remains Elevated, Threatening Persistence

Main points

• Headline consumer price inflation decreased to 10.5 per cent in December from 10.7 per cent in November. Despite the fall, this rate of annual inflation remains among the highest in four decades. Further, NIESR’s measure of underlying inflation, which excludes 5 per cent of the highest and lowest price changes, remained at its series high of 9 per cent for a consecutive month.
• Trimmed-mean inflation increased in each of the 12 UK regions in November. This measure of underlying inflation was the highest in the North of England and East Anglia at 9.5 per cent, while Northern Ireland had the lowest rate at 8.2 per cent.
• Today’s CPI figure is in line with that forecasted by our colleague Huw Dixon last month, under his ‘very high’ inflation scenario – which sees inflation peaking in January 2023. Given that different measures of underlying inflation remain elevated, alongside ‘base effects’ from January 2022, we expect to see a rise in the January 2023 headline figure.
• For a breakdown of what inflation is and how it is calculated, as well as why the MPC target an inflation rate of 2 per cent, read our blog post here.

“Annual CPI in December fell to 10.5 per cent from 10.7 per cent in November, driven by price decreases in transport (motor fuels), and clothing and footwear, which offset price increases in food and non-alcoholic beverages as well as restaurants and hotels. Despite this fall in the headline rate, NIESR’s measure of trimmed-mean inflation remained at its series high of 9 per cent for a consecutive month, suggesting that inflationary pressures have not yet cooled; paired with yesterday’s wage figures, the MPC will be considering how to tackle possible persistence in inflation and inflation expectations. Due to ‘base effects’, we expect to see a rise in the January 2023 headline figure – meaning inflation may not yet have peaked.”  

Paula Bejarano Carbo
Associate Economist, NIESR

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