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Inflation rises to 1.8% in January

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Consumer price inflation continued on its upward trajectory in January, rising 1.8% on an annual basis from 1.6% in the previous month, broadly in line with expectations. Core inflation, which strips out erratic items such as food and energy, in fact remained unchanged at 1.6% for the second consecutive month. Whilst some areas of the consumer basket are feeling the impact of the devaluation, in other areas, continued heavy discounting is more than offsetting building underlying pressures, for now.

The main contributors to the increase in the 12-month CPI rate came from transport and food. The rising oil price and the fall of the pound continue to push up the price of motor fuels, which grew 3.4% this year compared with a fall a year earlier. 

Food inflation has been creeping back towards zero over the last four months, remaining in negative territory in January, -0.4%, but recording the highest rate for over two and a half years. Meat, Fish and Vegetables have been the main drivers of the slowing rate of food deflation in recent months.

On the other Clothing and Footwear prices fell more this year than they did a year earlier, putting downward pressure on overall inflation. The proportion of items on sale was greater this year compared with last, as we also reported in our BRC-Nielsen Shop Price Index in January. The poor performance over the festive period in part explains this as retailers had excess stock to clear in the January sales.

Further price increases are in the pipeline. The gap between producer prices and consumer prices in January has widened further, as the output price of manufactured goods rose by 3.5%, 1.7 percentage points higher than the CPI headline rate. Retailers are still in a position to shield consumers from rising prices, however, they cannot do this forever.

Source : Siobhan Bentley, Analyst, Retail Insight and Analytics, BRC

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18 February 2017

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