The rate of inflation in the UK continued its rise in January according to this week’s figures from the Office for National Statistics. The CPI measure rose to 1.8% which is the highest it’s been since June 2014 and up from the 1.6% recorded in December.
Nonetheless, it was lower than the 1.9% the market had expected.
Commenting on the inflation data, Ian Forrest, investment research analyst at The Share Centre, said: “Rising fuel and food prices were the main reason behind the increase in the monthly figure, partially offset by falls in the cost of clothing and footwear.
“Food price deflation has been a major problem for the supermarket sector in recent years but today’s figures confirm it is steadily reversing and becoming less of an issue.”
He believes that as the headline rate of inflation continues to rise closer to the Bank of England’s 2% target, the weak pound suggests the rise is likely to continue as companies pass on the big increase in import prices they are experiencing.
“Investors may want to note that sterling responded to the news with a modest 0.5% fall against the dollar,” he said.
Ian Kernohan, economist at Royal London Asset Management, agrees that inflation will continue to rise: “We expect CPI to rise further and move above target later in the year, as the impact of sterling devaluation takes time to feed through. This will squeeze real earnings growth to close to 0%, unless wages rise by more than we expect.
“We see no interest rate increase from the Bank of England this year or next.”