Low inflation provides festive cheer for consumers, say economists
The latest data from the Office for National Statistics revealed that CPI held firm at 1.5% in November.
Economists have said that continued low inflation will give consumers “further cheer” over Christmas, as it continues to sit significantly below wage growth.
The latest data from the Office for National Statistics revealed that the Consumer Price Index (CPI) held firm at 1.5% in November, the same figure as a month earlier. Inflation was last lower in November 2016.
Inflation was higher than analysts had predicted, having forecast a decrease to 1.4% for the month.
Emma-Lou Montgomery, associate director for personal investing at Fidelity International, said the latest figures are positive for consumer finances.
A continued easing in the cost of goods and services included within the index will no doubt bring further cheer to consumers as they celebrate the festive season Emma-Lou Montgomery, Fidelity International
“Today’s UK CPI figures reveal, once again, the rate of inflation continues to lag behind wage growth – in a boon for households around the country.
“A continued easing in the cost of goods and services included within the index will no doubt bring further cheer to consumers as they celebrate the festive season, particularly following yesterday’s news of a strong jobs market.”
Wage growth remains significantly ahead of the rate of inflation, although figures released by the ONS on Tuesday revealed that average wage growth slipped to 3.2% in October, from 3.6% a month earlier.
Employment increased for the month, but the number of vacancies contracted for the tenth consecutive month as the labour market remained tight.
Analysts also highlighted that consumers will only feel a benefit in their purse if they do not have a sweet tooth, with the price of chocolate jumping as food prices increased for the month.
Victoria Clarke, economist at Investec, said: “The biggest upward force to the 12-month inflation rate in November month was the ‘food and non-alcoholic beverages’ category where British chocolate lovers were hit with a bigger price rise for chocolate boxes and chocolate-covered ice cream bars than in the same month last year.”
However, Howard Archer said the new figures are still “decent news for consumer purchasing power”.
He added: “It also gives the Bank of England ample scope to cut interest rates if the economy fails to decisively pick up early in 2020.”
— David Cheetham, CFA (@DavidCheetham3) December 18, 2019
UK CPI readings remain below the BoE's 2% threshold but not really far enough to warrant rate cuts. OIS pricing shows v little chance of a move tomorrow from the Bank - also seen as unlikely in the coming months. One 25bps cut largely discounted by Nov 2020 pic.twitter.com/OznIo4J3sF
Although the rate stayed noticeably below the Bank of England’s target rate of inflation, economists said they still do not expect a change to policy by rate-setters.
David Cheetham, chief market analyst at XTB, said: “The core reading of 1.7% was unchanged from the previous month and is close enough to the Bank of England’s 2% target to not by itself give too much food for thought amongst rate-setters ahead of tomorrow’s decision.
“After being widely criticised for becoming politicised following the bank’s comments on the EU referendum, it would not be at all surprising if they decide that the best course of action is no action at all and simply stand pat until there’s great clarity on the Brexit outcome.”
The pound increased against the dollar on the announcement but tailed off shortly after as concerns over Brexit continued to dominate trading.