Economy Watch: Inflation Modest in December

Economy Watch: Inflation Modest in December

Economy Watch: Inflation Modest in December

Consumer price inflation slipped to an annual rate of three per cent in December, below November's almost six-year high of 3.1 per cent and the first fall since June.

"This, along with the solid retail sales report for the same month, supports our expectation for a March rate hike by the Fed", said Jennifer Lee, senior economist at BMO Capital Markets.

Consumer price inflation based on the consumer price index (CPI) hit a 17-month high of 5.12 per cent year-on-year in December, showing a rising trend, partly due to the effect of a lower base in the wake of last year's demonetisation.

Companies' raw-material costs, though, rose only 4.9% on year to mark the slowest pace of growth since July 2016, which was a month after Britons' decision to leave the European Union sent the pound tumbling, pushing up the price of imports.

Sterling slipped against the U.S. dollar following the announcement, falling 0.2% to $1.37.

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However, pressure in the pipeline grew as factory gate prices rose, confounding predictions of a fall.

But James Tucker, a statistician who compiled the figures, said: "It remains too early to say whether today's slight fall is the start of any longer-term reduction in the rate of inflation".

But the Office for National Statistics (ONS) said it could not yet declare that inflation was definitely on the slide.

The wholesale price index (WPI) inflation was 3.93% in November 2017 and 2.10% in December 2016.

United Kingdom consumer price inflation including owner occupiers' housing costs (CPIH) came in at 2.7% in December, down from 2.8% in November.

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The energy index, which rose sharply in November, declined in December as the price of gasoline decreased.

The cost of clothes also fell on the month by 1% in December, compared with a 0.9% drop for the year before, while games, toys and hobbies were down by 2.7% in contrast to a 1% fall for the same period last year. The central bank targets 2 percent inflation.

"At the same time, we hope to see inclusion of petrol and diesel under GST in coming months, which should also help in lowering the pressures of fuel inflation", Shah said.

"However, because air fares account for a smaller proportion of the basket of goods and services in 2017, the impact of the rise in prices on the contribution of air fares to the headline rate was smaller in 2017 than in 2016".

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