Inflation ticks up to 0.6% despite December curbs

Inflation ticks up to 0.6% despite December curbs
Credit: Simon Dawson/Bloomberg

Inflation has climbed higher than forecast in December despite the introduction of lockdown measures to curb the spread of the coronavirus.

Figures from the Office of National Statistics, published today (January 20), showed inflation grew to 0.6 per cent for the month of December, up from the 0.3 per cent reported for November and slightly higher than the 0.5 per cent forecast.

This is despite swathes of the country living under restrictions under the government's tier system, with many pubs, restaurants and non-essential shops forced to close.

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It reinstates an upward inflation trend that was halted by November’s decline, but remains well below the Bank of England’s 2 per cent target.

The largest upward contribution came from rising transport costs, up 0.11 percentage points, while increasing prices for clothing and recreation and culture items also boosted inflation.

These trends were somewhat offset by a downward contribution from falling food and non-alcoholic drinks prices.

The largest contribution to the CPIH 12-month inflation rate came from recreation and culture (0.35 percentage points).

Laith Khalaf, financial analyst at AJ Bell, said it was “prudent” not to draw too many conclusions from consumer price measures as levels of economic activity were so “deeply distorted”.

But he added: “While inflation looks well contained, there is increasing concern it could start to be a problem once social restrictions are lifted, as a wave of pent up consumer demand is unleashed. 

“Central bank stimulus, helicopter money from the government, and high levels of cash savings built up during lockdown all support the thesis that the inflation genie may pop out of the bottle in the coming year.”

Read more: Is it time to prepare for higher inflation?

Jon Hudson, UK Equity Fund Manager at Premier Miton Investors, said: “The inflation rate remains well below target but given the lockdowns it is unsurprising. 

“Should the vaccine be successfully rolled out and restrictions reduced, it is likely inflation will pick up in the second half of the year, driven by consumers spending the money they have been unable to over the past year, and higher commodity prices.”

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