23 February 2017
January's inflation figure was the highest since June
Inflation fell from 1.9% in June 2014 and for much of 2015, it
barely existed. On the government's chosen measure, the Consumer
Prices Index (CPI), annual inflation oscillated between 0.3% and
-0.1%. 2016 was a rather different story: the starting point was
0.3%, but by December prices were rising by 1.6% a year and have
now reached 1.8% according to the latest figures from the Office of
National Statistics (ONS).
The sharp rise over 2016 and into 2017 is mainly the result of
the weakness of the pound since the Brexit vote and rising oil
prices - it is easy to forget that we started 2016 with
supermarkets selling petrol at 99.9p a litre and diesel at 99.8p.
Looking ahead, there is general agreement that inflation will
continue on an upward path. The Bank of England's most recent
inflation report estimated 2017 would end with inflation at 2.7%
and not return to its 2% target until 2020. Some commentators are
While the latest figures show that food prices are still falling
year-on-year, and that clothing and footwear also fell in January,
the other ten categories making up the CPI are all now in positive
territory, as they have been since October. One indicator of what
is coming down the line is that prices for materials and fuels paid
by UK manufacturers for processing (so-called input prices) rose
18.3% year on year.
The re-emergence of inflation is unlikely to mean any immediate
rise in short term interest rates. The Bank of England has so far
expressed the view that it will "look through" an increase stemming
from external factors beyond its control, such as oil and currency
volatility. For investors, the message is one that should never
have been forgotten: when considering investment returns, strip out
the effects of inflation. A 2% interest rate represents a loss if
inflation is running at 2.5%.
If you would like to discuss your own financial circumstances,
speak to your Chase de Vere adviser, call us on 0345 300
6256 or complete this form for
a call back.
The value of your investment can go down as well as up and
you may not get back the full amount you invested. Past performance
is not a reliable indicator of future performance. Investing in
shares should be regarded as a long-term investment and should fit
in with your overall attitude to risk and financial