Inflation: 'Fight far from over' as inflation falls but remains stuck in double digits

Chancellor Jeremy Hunt has admitted that the “fight is far from over” after the rate of inflation eased but remained in double digits.

The annual rate of consumer prices index (CPI) inflation fell to 10.1 per cent in January from 10.5 per cent in December, the Office for National Statistics (ONS) said. It follows two previous consecutive falls from October’s 41-year peak of 11.1 per cent. Grant Fitzner, chief economist for the ONS, said: “Although still at a high level, inflation eased again in January. This was driven by the price of air and coach travel dropping back after last month’s steep rise. Petrol prices continue to fall and there was a dip in restaurant, cafe and takeaway prices.”

He added: “The cost of furniture decreased by more than this time last year, in line with traditional New Year discounting. These were offset by rising prices for alcohol and tobacco, following on from seasonal price cuts in December and a more subdued rise at the same time last year. There are further indications that costs facing businesses are rising more slowly, driven by falls in crude oil, electricity and petroleum prices. However, business prices remain high overall, particularly for steel and food products.”

With inflation still firmly in double digits, households have yet to feel the pressure lift. The ONS said food price inflation remained at a 45-year high of 16.8 per cent in January, although the rate including non-alcoholic drinks dipped to 16.7 per cent from 16.8 per cent.

The Chancellor said: “While any fall in inflation is welcome, the fight is far from over. High inflation strangles growth and causes pain for families and businesses - that’s why we must stick to the plan to halve inflation this year, reduce debt and grow the economy.”

The Bank of England has said it believes CPI will fall sharply this year, with governor Andrew Bailey recently saying there has been a "turning of the corner” on inflation. This is due to falling fuel prices and as supply chain difficulties have eased, while wholesale energy prices have also dropped significantly since the painful costs seen last year. The central bank is forecasting inflation to fall to around 4 per cent towards the end of this year. It recently raised interest rates by a half-point to 4 per cent and a further hike is still on the cards.

Ed Monk, associate director, personal investing at Fidelity International, said: “Inflation may be on a downwards course but progress is painfully slow. The fall in UK CPI inflation to 10.1 per cent at least continues the downward trend of recent months but households will continue to feel squeezed as long as their living costs continue to run ahead of the pay rises. Inflation is eroding worker wages and making them poorer in real terms, yet wages are rising strongly in cash terms which means the Bank of England will feel it has little room to lower interest rates to help growth.”

The retail prices index (RPI) remained unchanged at 13.4 per cent in January.