Inflation rose slightly faster than expected in December as shops held off from their traditional discounting on fashion and footwear.
That, plus rising fuel and video games prices, pushed inflation up to 0.6% for the month from 0.3% in November, and outweighed big falls in food and drink prices during the month.
Financial markets have been watching inflation closely for signs that it will get out of hand due to the vast stimulus being pushed into the economy through super-low interest rates and quantitative easing during Covid.
Conventional economics suggests such measures should send prices higher as they tend to put more money in people’s pockets, making borrowing cheaper. While assets such as shares have shot up, everyday items are still subdued.
However, the increase today could take some of the sting out of debates at the Bank of England that it should be moving to negative interest rates in order to boost consumption. Those against such a move fear, among other things, that it would push inflation too high.
Food prices plunged 1.4% in the year to December, led by falls in vegetable prices, particularly potatoes, the ONS said.
Petrol prices rose 1.5p a litre between November and December as global crude oil prices rose due to a pickup in the Chinese economy post-Covid.
The ONS said the clothes price rises were unusual for the time of year as discounting is usual for the festive season, particularly as November Black Friday sales periods tend to spread into December.
The ONS said December’s shop prices were advertised as falling more than in previous years but in fact there was evidence that, after being cut, they were quickly put back up.
Gaming consoles pushed up the inflation index but that was largely because prices were up on a year ago, rather than due to any increase between November and December.