As neither energy prices nor sterling moved significantly during the month, current inflation levels remain their highest since September 2013.
Inflation subsequently began its gradual decline to the low levels seen throughout 2015 – sitting just above zero for much of the year – before beginning its climb to today’s rate of 2.3%.
The Office for National Statistics (ONS) confirmed rising prices for food, alcohol, tobacco, clothing and footwear, and miscellaneous goods and services sit behind the steady rise since 2015.
These upward contributors have been offset by downward contributors from transport – namely air fares and motor fuel.
ETF provider WisdomTree believes the level represents inflation’s peak “for now”.
However Viktor Nossek, director of research, said three risks remained: a weakening pound, a rising oil price and a significant increase in the non-energy-related components of the index.
“With Brexit uncertainty already priced in, however, we would need to see a catastrophic breakdown in the EU27 trade talks for sterling to fall much further from here,” he added.
If oil were to breach $60 a barrel, that would pose another risk, he said.
“Bullishness abounded after the OPEC production deal but even after subsequent announcements on cuts from both the cartel and non-OPEC producers the oil price has barely moved.
“Every time the price moves higher, US shale producers raise output. Unless this constant counterbalance is disrupted, the oil price will remain broadly static.”
Finally, while mindful of the non-energy components of UK CPI, for price increases in these areas, the UK would need to see higher household consumption.
He explained unless employment outstrips expectations and wages grow, it looks doubtful.
“It is worth remembering that CPI in the US is only just creeping up despite wages increasing in response to a stronger labour market. This is ‘good’ inflation.
“In the UK, we have ‘bad’ inflation, driven by a weaker pound and higher energy costs.
“Bigger bills will hit households’ propensity to spend. Without a major shift in either sterling or oil, higher UK inflation looks unsustainable.”
