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Inflation tipped to edge higher
PETROL price rises and household energy bill hikes are expected to drive a rise in inflation.
Inflation is expected to have crept up slightly from a four-year low when figures for December are published today.
The Consumer Prices Index (CPI) rate fell to 2.1% in November, but economists on average expect it will have nudged ahead to 2.2% over the latest period.
Petrol price rises and household energy bill hikes are expected to drive the rise, but easing food inflation and aggressive high street discounting in the run-up to Christmas should have kept the lid on the increase in the cost of living.
The official data from the Office for National Statistics (ONS) should see inflation remaining just slightly above the Bank of England's 2% target. It was last below this level, at 1.9%, in November 2009.
An easing in the CPI level - which was as high as 2.9% in June - keeps the pressure off the Bank's policymakers as they look to hold down interest rates at their historic low of 0.5% and inject billions of pounds into the economy.
The pledge by governor Mark Carney to hold down interest rates until unemployment falls below a certain threshold has built-in caveats which means it no longer applies if inflation looks likely to spiral - but for the moment this is not the case.
Analysts at Capital Economics said that, though inflation probably edged up in December, this was "unlikely to be the start of an upward trend" and expected CPI to fall below the 2% target during 2014.
They said that while there had been major energy price rises and an increase in petrol pump prices, intense retail promotions would drag inflation down while a fall in global agricultural commodity prices pointed to food inflation easing further.
Looking ahead, CPI could rise again in January. But it is likely to come down again afterwards with the impact of Government changes to green levies on energy bills and that of the stronger pound on the price of imported goods.
Alan Clarke of Scotiabank forecast the latest inflation figure remaining static at 2.1%, although he noted the volatile potential impact of Christmas air fares.
Howard Archer of IHS Global Insight also predicted CPI staying the same.
He said: "Consumer price inflation is expected to have been limited in December by increased discounting as retailers tried to get consumers to spend at Christmas while there may also have been some easing in food price inflation."
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