Annual inflation has been well below the Bank of England’s target of 2 percent for years, and last year it was at zero. However, the ONS said it is important to note these are highly variable; they typically drop in January following increases in December and the rise in December previous year was the largest for that month since 2002.
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“Governor Carney has said recently that he would need to see a pickup in core inflation before raising interest rates”, said Scott Bowman, UK economist at Capital Economics.
At the start of this year, food prices and services remained the same, but the reduction in the IPC also came about because of cheaper prices of pharmaceutical products and, to a lesser extent, cars, clothing and shoes.
Alcohol and tobacco grew by 1.3% compared with January 2015. Inflation, as measured by the Consumer Prices Index, rose by 0.3%.
Within primary articles, inflation accelerated in non-food articles from 7.7 per cent in December 2015 to 8.24 per cent in January 2016.
The Wholesale Price Index (WPI) remained in the negative territory for the 15th straight month in January this year at (-) 0.90 per cent, a tad higher than (-) 0.95 per cent in the same month last year.
The index for “Leather & Leather Products” group rose by 0.3 percent for the previous month due to higher price of leathers (1%). The General Indices (Provisional) for the month of January 2016 for Rural, Urban and Combined are 128.1, 124.2 and 126.3 respectively. Analysts believe that house prices are falling in Dubai, and that official statistics lag behind market developments – meaning that inflation in the emirate could be lower than the official figure.
ING Bank economist James Knightley said: “There isn’t enough inflationary pressures to worry the Bank of England”.
CII director general Chandrajit Banerjee said that the wholesale price inflation has been in the red for more than a year, even though the contraction has somewhat moderated. The rate of inflation has steadily shown a downward trend for both commodities from the peak inflation rates in October.
However, most of the increase in food prices was on account of three items – non-vegetarian foods, vegetables and pulses. The unexpected decline in United Kingdom core CPI inflation gives further support to BoE Governor Carney’s view.
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HM Treasury said in a statement, “Today’s low inflation figures continue to show prices growing more slowly than wages, boosting families’ spending power with just over a month to go before the introduction of the new National Living Wage, which lands in people’s pay packets in April”.
