UK inflation was unchanged at 3% at the start of 2018

LONDON — The level of inflation remained unchanged at the
beginning of 2018, confounding expectations that it would start
to fall sharply as the year commenced.

Office for National Statistics said on Tuesday 
that the
UK’s Consumer Prices Index (CPI) inflation rate — the key measure
of inflation — was 3% in January, unchanged from the level seen
in December’s data release, the final one of 2017.

CPI measures the weighted average of prices of a basket of goods
and services, such as food, transportation, and medical care.

CPIH, a measure which includes costs associated with
maintaining a home — and which the ONS cites as a more useful
indicator of living costs than CPI — was 2.7% in the month, once
again unchanged from December’s reading.

“Headline inflation was unchanged with petrol prices rising
by less than this time last year. However, the cost of entry to
attractions such as zoos and gardens fell more slowly,” ONS
Senior Statistician James Tucker said in a statement.

“After rising strongly since the middle of 2016, food price
inflation now appears to be slowing.” 

Here’s the ONS’ chart, showing Tuesday’s data as part of
the longer term trend:

Screen Shot 2018 02 13 at 09.33.33ONS

The sharp fall in the value of the pound following the UK’s vote
to leave the EU in the summer of 2016 has raised the cost of
imports and pushed up the rate of inflation.

Most major forecasters believed that inflation would peak in late
2017, and start to fall as 2018 progresses, thanks in
part to sterling’s recent recovery to almost $1.40.

Inflation’s consistent overshooting of the Bank of England’s
government mandated 2% target over the past year or so is one of
the main drivers for the bank’s recent assertions that it will
likely raise interest rates faster, and to a greater extent than
previously expected during 2018.

“It will be likely be necessary to raise interest rates to
a limited degree in a gradual process, but somewhat earlier and
to a somewhat greater extent than what we had thought in
November,” Governor Mark Carney
said in a press conference following a meeting of the BoE’s
Monetary Policy Committee last week.

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