The consumer price index fell from 10.7% in November, while the consumer price index including owner occupiers’ housing (CPIH) fell from 9.3% in November to 9.2% last month, data from the Office for National Statistics revealed.
The drop was mainly due to a decline in fuel prices, while also being helped by a drop in clothing and footwear, and recreation and culture.
Fuel prices rose 11.5% in the year to December 2022, compared to 17.2% in the year to November, as petrol prices dropped 8.3% in the last month.
December also saw the lowest petrol prices since before the Russian invasion of Ukraine in February 2022, sitting at 115.3p per litre.
These declines were partially offset by a continued rise in prices from both restaurants and hotels and food and non-alcoholic beverages, with food price inflation rising from 16.5% to 16.9% in a month.
This led to core inflation, which strips out food, energy, alcohol, and tobacco prices, remaining unchanged at 6.3%, above economist expectations.
Inflation in the UK still remains significantly above many other developed countries. The US reported inflation had fallen to 6.5% in the country last week.
Hugh Gimber, global market strategist at JP Morgan Asset Management, said that while “a cold weather front may have descended on the UK,” there is “little sign of much cooling” in the inflation data.
Gimber argued the report will “add to the pressure” on the Bank of England to continue to tackle inflation at their meeting next month.
He noted that labour market reports had seen wage growth over 6%, with sectors such as hospitality seeing particularly sticky price pressures.
Gimber concluded: “This week’s evidence would suggest that bold action is required. We expect that interest rates will need to rise by at least one percentage point over the coming months – taking interest rates to 4.5% or above – before the bank is able to consider pausing its tightening cycle.”
Marcus Brookes, CIO at Quilter Investors, added: “For those hoping that inflation would simply just fall out of the system quickly, that is a scenario that is unlikely to come to fruition.”
Brookes said that “we seem to be at a crossroads with inflation,” and hints of the BoE’s actions following a split rate hike decision at the end of last year will be “crucial”.
“If inflation does not start to fall a little quicker than it is, then any chance of a reversal in monetary policy becomes increasingly unlikely by the day,” he added.
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