Chancellor predicts 'sharp decline' in inflation despite it rising to 3.4%

The Chancellor has said she expects there to be a "sharp decline" in inflation in the coming months, despite the latest figures showing it increased to 3.4% in December.

Tobacco duty hikes and a sharp rise in airfares helped push the Consumer Prices Index (CPI) from 3.2% in November to 3.4% a month later, according to the Office for National Statistics (ONS).

It is the first time inflation has increasedin five months.

But Rachel Reeves told ITV News she believed inflation would fall when many of her policies come into place, including frozen rail fares and cuts to energy bills.

She said: "When those measures come in, we expect to see that sharp decline in inflation, which is obviously good news for families across our country."

Inflation has been static or falling since last summer, and had fallen sharply in November following an easing of rising food costs.

However, December’s CPI rate comes in slightly below the 3.5% that a consensus of economists had been forecasting for the month.

Speaking to ITV News from Davos on Wednesday, Chancellor Rachel Reeves says she expects inflation to fall in the coming months

The ONS said alcohol and tobacco prices rose by 1% between November and December, following a hike to tobacco duties which was announced at the autumn budget.

Increased transport costs was also a major driver of the inflation rise, with prices up by 1.3% on a monthly basis.

The largest push came from air fares, which soared by 28.6% in December thanks to increased demand for travel over the festive period and school holidays fuelling price hikes.

Furthermore, food and non-alcoholic drink prices rose by 0.8% between November and December – with items like bread, cereals and vegetables, including potatoes, helping push up overall costs.

ONS chief economist Grant Fitzner said: “Inflation ticked up a little in December, driven partly by higher tobacco prices, following recently introduced excise duty increases.

“Air fares also contributed to the increase with prices rising more than a year ago, likely because of the timing of return flights over the Christmas and New Year period.

“Rising food costs, particularly for bread and cereals, were also an upward driver.

“These were partially offset by a fall in rents inflation and lower prices for a range of recreational and cultural purchases.”

Most economists think the latest inflation data has cemented expectations that the Bank will choose to keep interest rates on hold next month.

Meanwhile, the ONS’s preferred measure of inflation, Consumer Prices Index including occupiers’ housing (CPIH), rose to 3.6% in December, from 3.5% in November.

The Retail Prices Index (RPI) rate of inflation rose to 4.2% from 3.8% in November.

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