PRESS RELEASE : PwC comments on the Dec 22 CPI figures [January 2023]

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

“CPI inflation was 10.5% in December, down from 10.7% in November, and 11.1% in October. This means that inflation has fallen for two consecutive months for the first time since the pandemic started, providing the best evidence yet that inflation has peaked. However, the UK still ends 2022 with an inflation rate that is almost double the 5.5% inflation rate it started the year with.

“Seven of the twelve CPI divisions made downward contributions to the headline inflation rate in December, suggesting that inflation pressures are easing almost across the board. The transport  sector made the largest negative contribution, as petrol and diesel prices continued to fall back from the heights they reached last summer.

“Going forward, we expect that the headline inflation rate will continue to decline throughout 2023, and the UK will end the year with an inflation rate of around 3% to 3.5%. Falling energy prices mean that average household energy bills could fall below the government’s cap of £3,000 a year in the second half of 2023, which should provide further relief for households.”

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

“The slight decline in headline inflation from 10.7% in November to 10.5% in December will be of little consolation to hard-pressed consumers, who are already having to contend with the worst decline in real earnings in two generations.

While cheaper petrol, clothing and footwear provide some respite, the price of many day-to-day essentials – groceries in particular – continued to defy gravity in the critical run-up to Christmas, meaning double digit increases in the cost of many families’ first, back-to-normal Christmas dinners together since before the pandemic.

In spite of the unprecedented inflationary pressures last month, Britons were determined to make Christmas special. Retailer trading statements almost universally beat expectations, even if inflation meant that shoppers were getting less for their money.

Whilst fashion and footwear performed strongly in December, as we refreshed our wardrobe and wrapped up against the cold weather, we did see an acceleration in discounts in the last two weeks of the month and more traditional boxing day sales which helped bring down inflation.

The question is whether consumers have had to dip into their savings – or borrow – in order to fund their Christmas spending, and whether this will put a dampener on spending now that we’re into 2023. A recent study between PwC UK and TotallyMoney suggested that 8.9m UK adults show signs of financial fragility.

There will certainly be no let up in food price inflation at least until the summer. Combined with the energy price guarantee rising in April, the reality for retail and leisure companies is that there will simply be less disposable income to go around for the first part of the year and therefore a fight for share of wallet from shoppers.