PwC comments on Jan 2023 CPI figures

Commenting on the Office of National Statistics consumer price index for January 2023

Commenting on the latest ONS inflation data, Jake Finney, economist at PwC comments:

“CPI inflation fell for the third consecutive month to reach 10.1% in January, which was exactly in line with the Bank of England’s expectations. There is still some way to go - the UK has started 2023 with an inflation rate that is more than five-times higher than the Bank of England’s target of 2% - but the direction of travel is clear. 

“Four of the twelve CPI divisions made downward contributions to the change in the headline inflation rate. The transport sector made the largest negative contribution to the headline inflation rate, as the price of used cars fell by -7.2% on an annual basis, while petrol and diesel price inflation also continues to moderate. 

“The Bank of England will be pleased to see that services inflation is starting to subside, as this tends to be more persistent than goods inflation. They will also be reassured by the latest data indicating that private sector wage growth is easing. However, our view is that the Bank of England hasn’t seen quite enough to shift the dial - so we expect them to deliver one last 25bp rate hike in March.”

Lisa Hooker, Industry Leader for Consumer Markets at PwC, said:

“It will come as a big relief to consumers that inflation appears to be over its peak, and it is not expected to scale the heights of last year in the immediate future.

“Inflation fell by 0.6% in January 2023 but still remains at 10.1% for the last twelve months.  The fall was largely in relation to transport and fuel but it’s also good news that restaurants and hotels saw a fall in the rate particularly when January is a big month for booking holidays.  Consumers are excited about prioritising their holidays post Covid with a surge in bookings already seen this year.

“However, we are not out of the woods yet. We have still yet to see food price inflation easing as packaged food prices start to catch up with fresh food inflation. Alcohol and tobacco prices are also on the rise but will this encourage consumers to stick with New Year resolutions to reduce spending in these areas?  And the easing of wholesale gas prices has yet to find its way through to consumers, with no corresponding movement in the energy price cap.

“Therefore, the cost of living crisis still has some way to play out. With shoppers forced to spend more on essentials, this is bad news for the wider retail, consumer and leisure industries. Real incomes continue to decline for most of us, and we do not expect to see any respite until inflation reverts to more normal levels in the second half of the year. So the industry will need to engage with consumers, offer both good value for money and innovation to win in a market seeing flat or declining sales volumes.”