The Consumer Prices Index (CPI) rose by 3% in the 12 months to January 2025, according to the Office for National Statistics (ONS).
The 3% figure is the highest level in 10 months, up from 2.5% in the 12 months to December 2024, and surpasses the Bank of England’s target of 2%.
This increase is primarily driven by higher transport costs, elevated food prices, and a significant rise in private school fees due to new VAT regulations.
On a monthly basis, CPI fell by 0.1% in January 2025, compared with a 0.6% fall in January 2024.
The CPI including owner-occupiers’ housing costs (CPIH) rose by 3.9% in the 12 months to January 2025, up from 3.5% in December 2024.
The largest downward contributions to both figures came from housing and household services.
How the housing landscape is set to shift
Sponsored by Halifax Intermediaries
Alice Haine, personal finance analyst at Bestinvest, said: “Worryingly, core inflation, which strips out the more volatile items such as food, alcohol and tobacco, also increased to 3.7% in January from 3.2% in December, along with CPI services inflation, which rose to 5% from 4.4% in December, something that might cause concern for the BoE ahead of its next interest rate decision next month, along with the surge in pay growth in the final quarter of 2024.
“An uptick in the headline inflation figure will certainly be worrying for households, who may be fearing a return to the dark days of rapid price rises that devastated household budgets during the cost-of-living crisis. Higher inflation diminishes spending power and erodes savings, making it harder for people to maintain the living standards they desire.”
What rising inflation means for the base rate
The news that inflation came in higher than expected in January means the chances of a March interest rate cut now look remote.
Year-on-year, CPI now stands at its highest level in 10 months, while core inflation and services inflation – two elements that have proved a barrier to lower interest rates – accelerated sharply too.
Craig Rickman, personal finance expert at Interactive Investor, said: “This gives the Bank of England food for thought when policymakers meet again on 20 March.
“The bank has alternated between reductions and holds since it kick-started the rate-cutting process in August 2024, and after voting to slash the bank rate a couple of weeks ago, it seems this trend will continue with a hold the most likely outcome next month. Policymakers will also be wary about inflaming stubborn wage growth after it sped up to 6% in the final three months of 2024.”
This article was first published on Mortgage Solutions‘ sister site, YourMoney.com. Read: Inflation jumps to 10-month high of 3%
