Prices continue to rise, but is inflation easing?

• Prices continued to rise in November, with CPI up 0.4% in the month, however annualised inflation slowed to 10.7% from 11.1% in October.
• The slowing rate of annual inflation reflects stability of motor fuel prices, previously a major inflation driver, partially offset by higher prices in restaurants, cafes and pubs.
• Inflation remains high in food and non-alcoholic beverages, running at 16.5% year-on-year and the highest level since September 1977.

Nicholas Hyett, Investment Analyst, Wealth Club

“While the annualised rate of inflation slowed in November, consumers are unlikely to feel any relief in the cost of living crisis. Prices overall continue to rise, with food prices in particular rising at their fastest rate in 45 years. What relief there is for consumers comes mostly in transport –  but petrol prices have remained parked month-on-month rather than going into reverse.

This raises some difficult questions for policy makers. On the one hand headline inflation is easing, but whether that’s due to a weakening in local demand or simply global commodity prices is less clear. Areas like hospitality, which are more affected by domestic inflation, continue to see prices rise substantially, suggesting “core inflation” remains untamed. That’s a headache for central bankers – raising rates might help bring domestic inflation under control, but it will also exacerbate the cost of living crisis and potentially condemn the UK to a painful recession.

Today’s inflation numbers really raise more questions than answers. Is this just a blip in an ongoing inflationary trend or the beginning of the end of the inflationary bubble? We will have to wait for more data to be sure. The Bank of England Monetary Policy Committee doesn’t have that luxury though – tomorrow’s interest rate decision will tell us a lot about where they think the economy is heading.”