U.K. inflation likely to have accelerated further in December

The U.K. inflation is expected to have continued with its upward movement in December. However, there is still a concern about the massive rise in producer food prices caused by the decline in the pound to feed through t o CPI food prices. But for the moment, the BRC food price index implies just a modest pick-up, said Societe Generale in a research report.

Oil price increased 17 percent in sterling as well as in dollar terms in December. However, it takes one month to feed through to petrol prices. Actually, the prices of petrol dropped 1.7 percent sequentially in December; however, they dropped by more one year ago. So there would be slight positive effect on inflation.

“We also think that core inflation will have risen from 1.4 percent to 1.5 percent yoy”, noted Societe Generale.

The combination of these robust core and non-core factors might lead to a rise in inflation from 1.2 percent to 1.3 percent year-on-year. The producer price data would strengthen the rising inflation pressures with input price inflation set to rise to 13.3 percent year-on-year from 12.9 percent, added Societe Generale.