Wednesday, December 20, 2023

Inflation Falls To 3.9%

Headline inflation, as measured by the Consumer Prices Index (CPI), fell to 3.9% in the 12 months to November, down from 4.6% in October. This marks the second consecutive month of decline, and it was better that expectations of 4.3%; bringing a sigh of relief to many households, businesses, and policymakers.

The fall is largely attributed to the easing of energy price pressures. Global oil prices have moderated, and the government's energy price guarantee scheme is helping to shield consumers from the worst of the energy crisis.

Reasons for Cautious Optimism:

  • Downward trend: This is the second consecutive month of declining inflation, suggesting a possible turning point.
  • Energy reprieve: Lower energy prices are playing a key role in the slowdown, offering financial breathing room for many.
  • Policy measures: The Bank of England's rate hikes and the government's energy support programs are contributing to the easing of price pressures.

Challenges Ahead:

  • Core inflation remains high: While headline inflation is falling, core inflation, which excludes volatile items like energy and food, remains stubbornly high at 5.1%, indicating broader price pressures persist.
  • External uncertainties: Global economic turmoil and the ongoing war in Ukraine continue to pose risks to price stability.
  • Household financial strain: Despite the downward trend, many households are still struggling with the affordability of essentials, with wage growth lagging behind inflation.

It goes without saying that the Bank of England will be slow to lower rates, as it has been consistently behind the curve.

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