Energy Bill Rises Keep Inflation At 2.7%

Rises in home energy bills kept the headline measure of inflation steady at 2.7% in December.

The Office for National Statistics (ONS) confirmed that the annual rate of inflation, as measured by the Consumer Prices Index (CPI (Other OTC: CPIC - news) ), was static for the third month in a row.

Housing and household costs, which includes gas and electricity, rose 2% between November (Xetra: A0Z24E - news) and December.

But the rate of transport cost increases declined, with petrol prices falling by 2.8p per litre between November and December, compared with a fall of 1.1p a year earlier. Diesel prices fell by 1.4p per litre, compared with a year ago, the ONS said.

The 2.7% CPI figure was in line with forecasts by economists though some believe it will top 3% by the summer.

Stubborn inflation, above the Bank of England's 2% target since November 2009, is likely to have been a key argument against more quantitative easing to support economic growth at the bank's monthly policy meeting last month.

High inflation has also put pressure on consumer spending, which accounts for almost two thirds of the UK economy.

The Bank has forecast that inflation will peak in the third quarter of 2013.

According to separate data published by the ONS, factory gate inflation edged up in December - signalling that wider prices could edge up in coming months.

The developments were seized upon by union organisation the TUC as evidence the squeeze on households showed little sign of easing.

Its General Secretary Frances O’Grady said: "Inflation has been outstripping wage rises for three years now, which has already cost the average worker £4,000.

"Unless inflation falls are matched by stronger pay growth, 2013 will be the fourth year in a row that people have suffered real wage cuts. We won't have a sustainable economic recovery without healthier pay rises.

"The hike in energy bills is particularly tough on the poorest households, who spend over a quarter of their income on utility payments."