Consumer prices behaved much as expected in December. A 0.4 percent monthly rise was a little firmer than the market consensus but still soft enough to see the annual inflation rate dip a tick to 3.0 percent, in line with expectations and its first decline since June.
The largest downward impact on the monthly change in the yearly rate came from transport which subtracted nearly 0.1 percentage points on the back of a smaller increase in air fares than a year ago. Recreation and culture together with housing and household services reduced the headline rate by a further tick. However, a partial offset came from small positive effects from furniture and household goods and alcohol and tobacco, the latter reflecting November's Budget measures. As a result, the core CPI was up a marginally smaller 0.3 percent on the month which cut its yearly rate from 2.7 percent to 2.5 percent, a 5-month low. The CPIH, the measure preferred by the ONS, also saw a 0.3 percent increase versus November which in turn reduced its annual gain from 2.8 percent to 2.7 percent.
December's yearly CPI rate is well above the 2.7 percent call made in the BoE's November Inflation Report. Still, the deceleration will be welcome as will the slightly more marked drop in the underlying rate. Today's data should have no immediate implications for monetary policy and next month's MPC decision looks likely to be another unanimous vote for no change.