| Consensus | Consensus Range | Actual | Previous | |
| Month over Month | -0.5% | -0.5% to -0.1% | -0.5% | 0.4% |
| Year over Year | 3.0% | 2.9% to 3.1% | 3.0% | 3.4% |
| Core CPI - M/M | -0.6% | 0.3% | ||
| Core CPI - Y/Y | 3.1% | 3.2% |
Highlights
January's inflation data demonstrated that headline inflation eased to 3.0 percent from 3.4 percent, indicating that price pressures are moderating, supported by a sharp monthly decline of minus 0.5 percent, which is notably steeper than the same period last year. The main drag came from transport and food categories, implying that recent cost relief is being driven by volatile components rather than broad-based price stabilisation.
Core CPI slipped only marginally to 3.1 percent, signalling that structural inflation remains sticky. The divergence between goods and services is especially instructive as goods inflation dropped sharply to 1.6 percent, reflecting easing supply-chain pressures and weaker demand, while services inflation remains elevated at 4.4 percent, consistent with persistent wage and domestic cost pressures.
The consumer price index including owner occupiers' housing costs (CPIH) trends mirror this pattern. Although annual CPIH slowed to 3.2 percent, core CPIH at 3.3 percent confirms that housing-related and service-linked costs continue to sustain inflationary momentum. In summary, the latest report signifies a disinflationary trend driven by cyclical relief rather than deep structural adjustment. These updates take the RPI and RPI-P to 3, meaning that economic activities are now within the expectations in the UK.
Market Consensus Before Announcement
CPI seen down 0.5 percent on month and up a more moderate 3.0 percent on year in January versus increases of 0.4 percent and 3.4 percent in December.
Definition
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.
Description
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.