Current UK Inflation Rate
- CPI inflation rate: 3.1% (headline rate) CPI – D7G7 at ONS
- (page updated 17 Dec 2017)
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.
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)