Factory gate prices were just a little firmer than expected in December. A second successive 0.4 percent monthly gain lifted annual output price inflation by 0.2 percentage points to 3.3 percent, a 0.4 percentage point increase versus its recent October low but still 0.4 percentage points short of March's high.
Tobacco and alcohol prices (1.5 percent) saw one of the largest monthly advances alongside chemicals and pharmaceuticals (1.9 percent) but the next sharpest rise was only 0.3 percent. As a result, the core index increased 0.3 percent from mid-quarter which put its yearly rate at 2.5 percent, up from 2.2 percent last time. Higher food charges alone were worth 0.9 percentage points of the annual headline rate.
Meantime, input costs edged just 0.1 percent firmer on the month, their smallest increase since July. The annual rise dropped from 7.3 percent to 4.9 percent. Outside of fuel (1.8 percent), most basket elements showed little monthly change and a number recorded falls, notably imported metals (0.7 percent). The pound's trade weighted index has increased every month since August the level in December was 0.1 percent higher than a year ago. The relative strength here has significantly reduced imported inflation pressures.
Diminishing pressure from the exchange rate will help to keep a lid on CPI inflation going forward. Nonetheless, the BoE MPC's main focus will be on wages. Any significant pick-up here would be much more important and could prompt another hike in Bank Rate irrespective of how the pound is performing.