Inflation unexpectedly rises in December

Inflation unexpectedly increased to 4% in December off the back of rises in fuel and tobacco prices.

According to the latest figures from the Office for National Statistics (ONS) the small rise in the annual rate between November and December 2023 was a result of prices rising by 0.4% on the month, the same rate to one decimal place as it was between November and December a year earlier.

Economists had previously forecasted the rate to decrease to 3.8% in December.

Prices in the alcohol and tobacco division rose by 12.8% in the year to December 2023, compared with a rise of 10.2% in November. Prices rose by 1.2% between November and December this year, compared with a fall of 1.1% between the same two months a year ago.

The increase in the annual rate was largely the result of the increase in tobacco duty, after the government announced higher taxes in their autumn statement. Tobacco prices rose by 4.1% between November and December compared with a 0.3% rise between the same two months last year, leading to an annual increase of 16.0%.

Alcohol made a smaller contribution to the rise in the annual rate. Alcohol prices fell by 1.6% between November and December 2023 and by 2.3% between the same two months last year, leading to an annual increase of 9.6%.

Meanwhile, prices for recreational and cultural goods and services rose by 0.2% between November and December this year, compared with a fall of 0.2% a year ago. The annual rate rose to 6.0% in December 2023, up from 5.5% in November.

The largest contributions came from DVDs, computer software, computer games consoles, sports equipment, toys, plants and flowers, cat food, live music, theatre admissions, and package holidays.

In addition, food and non-alcoholic beverage prices rose by 0.5% between November and December 2023, compared with a rise of 1.6% a year ago. The annual rate was 8.0% in December 2023, easing for the ninth consecutive month from a recent high of 19.2% in March 2023

ONS chief economist Grant Fitzner said: “The rate of inflation ticked up a little in December, with rises in tobacco prices due to recently introduced duty increases.

“These were partially offset by falling food inflation, where prices still rose but at a much lower rate than this time last year. Meanwhile, the prices of goods leaving factories have little changed over the last few months, while the costs of raw materials remain lower than a year ago.”