UK inflation rate rises to 3.7%

The Consumer Prices Index (CPI) annual inflation – the Government’s target measure – was 3.7 per cent in December, up from 3.3 per cent in November.

The largest upward pressures to the change in CPI annual inflation between November and December came from:

air transport, where fares rose slightly more between November and December 2010 compared to the same two months a year ago. However, the main driver for the upward contribution was due to the weight for air transport being higher in 2010 compared to 2009. This means that the sharp rise in air fares between November and December this year (41.8 per cent) had a larger upward impact on the CPI compared to a year ago

fuels and lubricants, where prices increased this year by 2.8 per cent, the largest rise for a November to December period since 1996. Petrol and diesel prices both rose by more than a year ago reflecting a sharp rise in the price of oil between November and December 2010. The price of petrol, as recorded by the CPI, stood at £1.22 in December 2010, a record high

gas, where average bills rose this year due to some of the major energy suppliers increasing their tariffs in December 2010. Average gas bills were unchanged between November and December 2009

food, where prices, overall, rose this year by 1.6 per cent, the largest ever rise between a November and December period (between the same two months last year, prices increased by 0.8 per cent). The largest upward effects came from a wide range of products, most notably from vegetables, bread and cereals and milk, cheese and eggs

The largest downward pressure to the change in CPI annual inflation between November and December came from:

furniture and furnishings, where prices, overall, rose by 0.6 per cent between November and December this year compared with an increase of 4.2 per cent a year ago. The smaller rise this year is mainly due to prices increasing by far less than usual ahead of the January sales period for most types of furniture

In the year to December, RPI annual inflation was 4.8 per cent, up from 4.7 per cent in November. The main factors affecting the CPI also generally affected the RPI. The most significant exception was air transport, which had a downward impact on the RPI but an upward impact on the CPI (mainly due to the different weights used in the RPI and CPI). Additionally there was downward pressure from house depreciation, which fell between November and December 2010; this component is excluded from the CPI.

RPIX inflation – the all items RPI excluding mortgage interest payments – was 4.7 per cent in December, unchanged from November.

As an internationally comparable measure of inflation, the CPI shows that the UK inflation rate in November was above the provisional figure for the European Union. The UK rate was 3.3 per cent whereas the EU’s as a whole was 2.3 per cent.