UK core CPI rises past forecasts in December, led by airfares

UK consumer prices rose by slightly more than expected in December, with so-called ‘core’ consumer prices coming in comfortably ahead of market expectations.

By way of an immediate reaction, that pushed the pound higher versus the US dollar.

Britain’s consumer price index edged higher by 0.1% month-on-month in December, after an unchanged reading for the month before, according to the Office for National Statistics.

Versus a year ago, CPI was 0.2% higher – an 11-month high – driven by volatile prices for air fares which “will likely unwind in January” Dr.Howard Archer, chief UK+European economist at IHS Global Insight said in a research report sent to clients.

A smaller drop in petrol and diesel prices in December than in the same month of 2014 also had some upward impact.
Economists had been expecting an unchanged reading for CPI in comparison to the month before and a rise of 0.2% in year-on-year terms.

So-called ‘core’ consumer prices, which strip out what are typically the most volatile categories such as energy and food, advanced at a 1.4% year-on-year pace (consensus: 1.2%), again “significantly” due to the higher air fares.

“While renewed year-on-year falls in consumer prices looks unlikely, the current weakness in oil prices means that consumer price inflation will likely remain extremely low for longer,” Dr. Archer explained.

As of 09:37GMT cable was 0.57% higher at 1.4324.