UK inflation increased to 3.4% in December, primarily due to higher prices for tobacco and airfare. This uptick from the 3.2% recorded in November marks the first rise in the headline rate in five months, aligning with economists’ expectations.
Inflation reflects changes in the prices of goods and services over time, with monthly data provided by the Office for National Statistics (ONS). The December surge was attributed to a rise in tobacco duty, leading to increased cigarette prices, and elevated airfare costs during the festive season.
The ONS also highlighted higher expenses for certain foods like bread and cereals, partially offset by decreased rents and lower oil prices impacting raw material costs for businesses. Grant Fitzner, the ONS’s chief economist, noted that the inflation increase was driven by elevated tobacco and airfare prices, as well as rising food costs.
Inflation indicates how much more expensive items are compared to the previous year. While a decrease in inflation does not imply prices have stabilized, deflation occurs when inflation dips below 0%. The ONS calculates inflation based on a diverse “basket of goods” and services to represent consumer spending.
The Bank of England targets 2% inflation and has adjusted interest rates to manage inflation levels. Higher interest rates can reduce spending, subsequently curbing demand and lowering prices. In December 2021, the base rate was at 0.1%, having peaked at 5.25% in August 2023 before gradually decreasing to 3.75%.
Inflation rose steadily in 2021, reaching 11.1% in October 2022, primarily due to surging energy and food costs. Energy demand surged post-Covid, exacerbated by the conflict in Ukraine, which also drove up food prices. After hitting a three-year low of 1.7% in September 2024, inflation began a gradual ascent in October 2024.
