The Office for National Statistics (ONS) reported a 4% increase in the Consumer Prices Index (CPI) inflation rate for December 2023, up from 3.9% in November ...
According to the ONS, tobacco prices saw a significant increase of 16% year-on-year in December. This can be attributed to the rise in tobacco duty announced in the Chancellor's November autumn statement. Similarly, alcohol inflation rose to 9.6% following the duty increase on alcohol.
Grant Fitzner, chief economist at the ONS, stated that while tobacco and alcohol prices have risen, there has been a decrease in food inflation. However, food prices are still rising, albeit at a much lower rate than the previous year. This suggests that the rise in tobacco and alcohol prices has significantly impacted inflation more than the decrease in food prices.
The unexpected rise in inflation has also been attributed to recent attacks in the Red Sea by Iranian-backed Houthi militants on commercial vessels. This has caused concerns about the cost of oil and gas, as well as imported goods, which could see a further increase in prices.
Chancellor Jeremy Hunt has acknowledged the rise in inflation, but remains confident in the government's plan to control borrowing and boost economic growth through competitive tax levels. He stated, "As we have seen in the US, France, and Germany, inflation does not fall in a straight line, but our plan is working, and we should stick to it."
The cost of goods and services is likely to increase, putting a strain on household budgets. This is especially concerning for those on lower incomes who may struggle to keep up with rising prices.
The impact on the economy is also a cause for concern. Higher inflation rates can lead to a decrease in consumer spending, as people have less disposable income. This can then have a knock-on effect on businesses, potentially leading to job losses and a slowdown in economic growth.
The rise in inflation also has implications for the Bank of England's monetary policy. The central bank's target inflation rate is 2%, and with the current rate at 4%, there may be pressure to increase interest rates to control inflation. This could also have a negative impact on the economy, as it would make borrowing more expensive for businesses and individuals.
The main contributing factors of tobacco and alcohol prices, as well as external factors such as attacks in the Red Sea, have led to this increase!
While the government remains confident in its plan to control borrowing and boost economic growth, the impact of higher inflation rates on households and the economy cannot be ignored.
It remains to be seen how the Bank of England will respond to this unexpected rise in inflation.
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