CITY AM – Inflation set to drop despite Red Sea crisis

Inflation set to fall – but fears Red Sea crisis could push prices higher take hold

CITY AM SAYS Inflation is expected to continue its descent when new figures are released on Wednesday, amid growing fears that the conflict in the Middle East could spark a resurgence in inflation.

Economists expect the headline consumer price index (CPI) for December to come in at 3.8 per cent, marginally lower than the 3.9 per cent recorded in November.

The dip in the headline rate will be driven by the continued easing in food inflation while energy prices will also continue falling.

Core inflation – which strips out volatile components and is seen as a more accurate gauge of inflationary pressures – is expected to fall to 4.9 per cent, down from 5.1 per cent the month before.

Although December’s figures will still show some progress in the fight against inflation, it will be at a much slower pace than the last two months.

In October and November, inflation came in meaningfully below both market expectations and the Bank of England’s own forecasts. The Bank thought inflation would only have fallen to 4.6 per cent by the turn of the year.

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