Inflation fell again to 10.1% in January

Inflation has fallen again for the third consecutive month, the latest Consumer Price Index (CPI) has revealed.

The ONS reported on 15th February that the average prices in January of a range of common consumer purchases are 10.1% higher than at the same time last year. This latest figure represents a 0.4 percentage point fall on December’s inflation figures, with prices down 0.1% month-on-month.

As in previous months, the largest contributor to the slowing rate of inflation was continued fall in transport and motor fuel prices. Prices at the pump, although still above prices seen this time last year, fell on the previous month, while public transport costs also fell significantly with the temporary introduction of £2 local bus fares across the UK.

Falling petrol and diesel prices however were offset by continued increases in prices for food and drink, with prices 16.8% higher than in January 2022.

The continued fall in the rate of inflation recorded by the ONS in the UK mirrors the picture in other major economies. The US, Germany and Italy (the only G7 economy with a higher rate of inflation than the UK) have also see sustained falls in the rates of inflation; France (where more aggressive government intervention on energy bills has seen inflation cap out at just 7%) has also seen inflation stabilise in recent months.

The slight fall in inflation follows the decision by the Bank of England to continue to raise interest rates, most recently to 4%. While inflation remains far above the Bank’s 2% target, the sustained fall in the rate of inflation may discourage further sharp rises from the UK’s central bank, given the pressure of rates rises on borrowers, in particular, mortgage-holders.

Current estimates expect interest rates to reach highs of 4.5% later this year, with inflation expected to fall back to between 4% and 5% by the end of 2023.