Inflation has unexpectedly increased to 3% for the year ending in January, marking a 10-month high and posing new difficulties for consumers and the chancellor.
The yearly price growth rate exceeded December’s 2.5% and the 2.8% expected by economists surveyed by Reuters, as reported by the Office for National Statistics (ONS). This is the highest rate since March of the previous year.
The surge was attributed to increased expenses for private schools following the introduction of VAT on tuition fees, as well as rising prices for food, non-alcoholic beverages, and airfares that decreased less than anticipated for January.
Grant Fitzner, the chief economist of the ONS, commented: “The rise was largely due to airfares not dropping as significantly as we typically expect at this time of year, influenced partly by the holiday flight schedule over Christmas and New Year.
“This was the most modest January decline since 2020. Following a decline last year, food and non-alcoholic drink prices have risen, notably in meats, bread, and cereals.
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“Private school fees also played a role, with new VAT regulations resulting in a near 13% increase this month.”
Beginning this year, numerous schools have transferred additional costs to parents after a standard VAT rate of 20% was applied to private education and boarding charges.
On a month-to-month basis, CPI decreased by 0.1% in January, compared to a 0.6% decrease in January 2024.
Transport expenses experienced the fastest annual growth since February 2023, driven by airfares and fuel prices that didn’t decline as much as last year, though this was somewhat balanced by a drop in used car prices.
Typically, airfares rise at the beginning of December and decline by January. However, this year, the change was less pronounced than in previous years, according to the ONS.
Food prices increased by 3.3% in January, up from 2% in December, with prices for meat, bread and cereals, fish, milk, cheese and eggs, jam, coffee and tea, and juice all rising.
The core inflation rate, which excludes volatile food and energy costs, rose to 3.7% from 3.2%.
Inflation reflects the rate at which prices rise over time. For instance, if a bottle of milk costs £1 and rises to £1.05 within a year, the annual inflation for milk is 5%.
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Overall inflation has significantly decreased from a high of 11.1% in October 2022, the highest rate in 40 years. Yet, this does not indicate that prices are decreasing; rather, they are increasing at a slower rate.
Chancellor Rachel Reeves stated: “My top priority is to put more money into people’s pockets. Since the election, we have witnessed the fastest rate of year-on-year wage growth after adjusting for inflation—averaging an additional £1,000 per year—but I understand that countless families continue to struggle.
