The UK saw price increases slow for the second month in succession, but food costs such as milk and cheese kept inflation at an all-time high of 40 years.
The rate at which prices rises was measured by inflation, which fell to 10.5% from November’s 10.7%.
Last month saw a decrease in petrol and diesel prices, but food prices continued their upward spiral to the highest point since 1977.
Restaurant and hotel prices saw a significant increase in December, as did record-breaking air fares.
Millions of people struggle with rising living costs, which have been increasing steadily since Covid restrictions were lifted and Russia launched its attack on Ukraine.
According to the Office for National Statistics, 16.8% of food prices rose in the 12 months to December. Many households spent more on Christmas gifts.
The largest price increases were seen in basic foods like milk, cheese, and eggs. The prices of sugar, jams, honey, chocolate, and soft drinks and juices rose as well. Bread and cereals saw their prices slow down.
Philip de Ternant is a food wholesaler and runs Creed Foodservice, Cheltenham. He said that the past year saw a “tsunami of rising food prices.”
He said that baked beans have increased by more than 50% in the past year. “Spanish canned tomatoes are also up 50%. Pasta, a staple food for many chefs, has seen a 24% increase.
Inflation refers to an increase in the cost of something over time. The ONS tracks the prices for hundreds of everyday goods and uses them to calculate inflation.
It does not necessarily mean that the price of goods is falling, but it just means that prices are rising slowly.
Analysts believe that the cost to live is slowly starting to fall after it hit the peak of 11.1% in October.
However, UK inflation stands at 10.5% which is well above the 2% target that the Bank of England has to meet.
Chief economist at the ONS Grant Fitzner stated that petrol prices dropped by 8p per gallon last month while diesel prices fell by 16p per gallon.
In December 2022, the average petrol and diesel price was PS1.55 and PS1.79 respectively.
He said, “It’s important to note that although we have seen a second consecutive easement, it is a modest fall and inflation remains at a very high level with overall price rises strongly.”
A sharp drop in inflation is not possible without some obstacles.
Fitzner stated that the private sector’s 7.2% increase in pay over the three months ended November was the strongest for decades. The average pay has increased at an unprecedented rate over the past 20 years but it is not keeping up with rising costs.
The December price rises for coach and air travel were also strong, with prices rising by 44.1%. This is the highest recorded rate since January 1989.
Although inflation fell for the second consecutive month, Susannah Streeter from Hargreaves Lansdown, senior investment and market analyst, said that there was still much to be done before the price spiral can be controlled.
She said that “with the job market still tight, energy set will stay elevated and relentless price rises for food continuing it will mean inflation stays stuckier for longer”.
To stem rising prices, the Bank of England has raised interest rates since December 2021. They currently have 3.5%. The Bank will hold the next rate-setting meeting on February.
Inflation can be controlled by increasing interest rates. This raises borrowing costs, and should encourage people not to borrow as much.
Ms Streeter stated that the Bank should continue to raise interest rates in the UK, and added that an increase of half a percentage point “is still very likely”.
The forecast for inflation is more than half in the next year. This is not due to any government action but because it compares prices today with a year ago.
Last February saw a big rise in fuel prices. The difference between the current and previous prices won’t be as noticeable once we reach March.
The Office for Budget Responsibility has been able to predict inflation at around 11%. It did so last fall, and then fell back.
It forecasts that inflation will fall to below 7% this summer, and to 4% by year’s end. However, it is difficult to believe now that it also predicts that inflation will be negative by 2024.
Although this may lead to a slight drop in the cost of living, it will not be enough to compensate for the expected rise in living standards that inflation is likely to cause – the worst since over forty years.
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Chancellor Jeremy Hunt stated that while an inflation drop is welcome, it was vital that the government make “difficult decisions to lower it further.”
Shadow Chancellor Rachel Reeves, however, stated that “each day brings more and more evidence of people feeling worse off under Tories.”
Rishi Sunak, Prime Minister of India, has promised to reduce inflation by half this year. However many forecasters believe this will occur as energy costs fall.
Mr Hunt stated that high inflation can be a problem for family budgets and destroys investment in businesses. He also said that strike action is possible if we don’t change our plans to reduce it.