Current UK Inflation Rate
- CPI inflation rate: 3.1% (headline rate) CPI – D7G7 at ONS
- (page updated 17 Dec 2017)
- Source: Raw data General inflation tables | CPI annual % change D7G7 at ONS
Other measures of inflation
- (CPIH) CPI including owner occupiers’ housing costs – 2.8% (CPIH – L550)
- RPI – 3.9% (Nov 2017)
- Factory gate prices (Output prices) 3.3% June 2017 (output prices) ONS
- See: Measures of inflation
Cost-push inflationary factors
In 2017, UK has seen a rise in cost-push inflationary pressures. This has caused a spike in inflation, despite relatively weak economic growth. Cost-push inflationary factors have come from:
- Devaluation in Sterling. This makes imports more expensive and has fed through into higher input prices for manufacturers.
- Rise in petrol prices in early part of 2017.
- Rise in food and recreational goods.
What factors are affecting current inflation rates?
Despite temporary cost-push inflationary factors in 2017, underlying inflationary pressures remain muted – at least compared to the past four decades.
The current UK inflation rate compares favourable to much of the post-war period. The 1970s frequently saw double digit inflation (due to global inflationary pressures from rising oil prices + wage growth). In 2017, the annual CPI is just above the inflation target of 2%.
This is due to:
- Low worldwide inflationary expectations. Europe is experiencing very low rates of inflation.
- Fall in global inflation rates since 2007.
- Supermarket price wars, with big chains, such as Tesco and Sainsbury attempting to maintain market share from Pound Shops and discounters like Lidl.
- Weaker commodity price growth.
- Fiscal austerity – many government departments still seeing spending squeezed. In particular public sector pay restraint of 1% has reduced real wages for public sector workers.
- Private sector wage growth still weak. This has limited costs of firms and limited growth in aggregate demand.
- Potential negative output gap, with real GDP still around 10-15% below pre-crisis trend rate.
Inflation and wages
- Real wages = nominal wages – inflation.
- Usually, during a period of economic growth – wage growth is higher than inflation, this leads to positive real wage growth.
- During the economic recession of 2009-13 – we had a prolonged period of negative real wage growth. Wages rising at a slower rate than inflation.
- The end of 2014 saw the first signs of renewed wage growth and positive real wage growth.
Since 2017, the trend of negative real wage growth has resumed. This low nominal wage growth is one of the major costs of inflation rate of 3%.
See more at UK wage growth
Inflation since 1990
- Inflation rose over 8% in the late 1980s due to the Lawson boom, which was a period of unsustainable economic growth.
- Inflation was low in the period 1992 to 2007. This was a period known as the ‘great moderation’
- The inflation of 2008 and 2012 was due to cost-push factors (devaluation and rising commodity prices)
