Prices are seasonally soft in January meaning that even a surprisingly steep 0.6 percent monthly fall left the annual inflation rate steady a 4.0 percent, matching its year-end print. Accordingly, inflation remains 2.0 percentage points above its medium-term target.

Core prices declined a sharper 0.9 percent on the month but this too was only enough to hold the underlying yearly inflation rate at 5.1 percent. Overall goods inflation actually dipped from 1.9 percent to 1.8 percent but, more significantly, the rate in services climbed again, from 6.4 percent to 6.5 percent, a 3-month high.

The main upward contribution to the change in the annual headline rate came from housing and household services where prices rose a monthly 1.8 percent after a 0.5 percent increase in January 2023. Transport (minus 2.8 percent after minus 3.6 percent) and miscellaneous goods and services (0.9 percent after 0.7 percent) were also supportive. However, positive effects here were largely offset by the negative impact of falls in furniture and household goods (3.1 percent after 1.1 percent), food and soft drink (0.4 percent after 0.6 percent) and clothing and footwear (2.2 percent after 2.7 percent).

Today's unexpectedly weak inflation updates should be only cautiously well received at the BoE and, absent a downside shock in the February CPI report, there may again be only one vote on the MPC to lower Bank Rate next month. With the core rate still sticky and well above target, the majority of MPC members are unlikely to favour a cut as soon as March. The UK's RPI now stands at minus 6 and the RPI-P at 5, both measures essentially showing overall economic activity matching market forecasts and the gap between the two reflecting the surprising softness of recent inflation news.

At 4.0 percent versus expectations for 3.8 percent, consumer prices in December were a good deal stronger than expected. January's expectations are a 2 tenths rise to 4.2 percent. The monthly rate, however, is seen falling 0.3 percent after rising 0.4 percent in December.

The consumer price index (CPI) is an average measure of the level of the prices of goods and services bought for the purpose of consumption by the vast majority of households in the UK. It is calculated using the same methodology developed by Eurostat, the European Union's statistical agency, for its harmonised index of consumer prices (HICP). The CPI is the Bank of England's target inflation measure.

The consumer price index is the most widely followed indicator of inflation. An investor who understands how inflation influences the markets will benefit over those investors that do not understand the impact. In countries such as the UK, where monetary policy decisions rest on the central bank's inflation target, the rate of inflation directly affects all interest rates charged to business and the consumer. Inflation is an increase in the overall price level of goods and services. The relationship between inflation and interest rates is the key to understanding how indicators such as the CPI influence the markets - and your investments.

Inflation (along with various risks) basically explains how interest rates are set on everything from your mortgage and auto loans to Treasury bills, notes and bonds. As the rate of inflation changes and as expectations on inflation change, the markets adjust interest rates. The effect ripples across stocks, bonds, commodities, and your portfolio, often in a dramatic fashion.

By tracking inflation, whether high or low, rising or falling, investors can anticipate how different types of investments will perform. Over the long run, the bond market will rally (fall) when increases in the CPI are small (large). The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.

For monetary policy, the Bank of England generally follows the annual change in the consumer price index which is calculated using the European Union's Eurostat methodology so that inflation can be compared across EU member states.