Why has inflation risen and what does it mean for me?

Inflation rose in December for the first time in five months as prices for things like airfares, cigarettes and alcohol rose at the end of the year.

The annual rate of Consumer Prices Index (CPI) was recorded at 3.4% for the month, up from 3.2% in November, according to the Office for National Statistics (ONS).

Inflation had been static or falling since last summer, and had dropped sharply in November following an easing of rising food costs.

Here, Press Association looks at why inflation went up and what it means for households and the economy.

– What is inflation?

Inflation is the term used to describe the rising price of goods and services.

The inflation rate refers to how quickly prices are going up.

December’s inflation rate of 3.4% means if an item cost £100 a year ago, it would now cost £103.40.

It is higher than the 3.2% rate recorded in November, meaning that prices are rising at a faster rate than they were before.

– What made inflation go up?

The ONS said that one of the biggest factors driving inflation higher last month was alcohol and cigarette prices, which largely reflected an increase to tobacco duties introduced at the autumn budget in November.

Increased demand for trips away over Christmas and during the school holidays also helped fuel prices across the transport sector.

Airfares shot up by 28.6% between November and December, ONS data showed.

Overall transport costs rose by 1.3% month-on-month, while hotels and restaurants edged up by 0.2%.

Food and non-alcoholic drink prices also increased at the end of the year, rising by 0.8% month-on-month, with inflation accelerating for items including pizza, quiche, breakfast cereal, crisps and cheese.

– Will inflation keep going up?

Most experts think that December’s data marked a temporary increase to CPI which will continue to fall in the months ahead, offering some relief to households feeling the pinch.

Headline inflation has been static or falling since July last year, and had dropped sharply in November when there was an easing of food price rises.

Alice Haines, personal finance analyst at Bestinvest by Evelyn Partners, said: “Rising inflation will inevitably worry households, who are still digesting years of soaring living costs.

“However, the latest uplift is expected to be a temporary blip rather than the start of renewed inflationary surge.”

She added that the “slowdown in price pressures seen in the final few months of 2025 is set to resume this year”.

Experts pointed out that some households could notice price pressures easing from April when one-off support for household energy bills will be introduced and fuel duty will be frozen.

– What does it mean for interest rates?

Many economists think the Bank of England will not be overly concerned by December’s inflation rise because price rises are expected to continue cooling this year.

Furthermore, the central bankers will be focused on other economic data showing the jobs market weakening and wage growth slowing.

The Bank is widely expected to keep interest rates on hold at 3.75% when it next meets in February.

James Smith, a developed market economist for ING, said policymakers could be “comfortable cutting rates in March”, and again in June, should inflation drop sharply in April as forecast.

Others are not expecting the next cut to interest rates to come until April.

Sarah Coles, head of personal finance at Hargraves Lansdown, pointed out that the new year was a key time for mortgage lenders to “bring buyers back to the market”.

“It means we have seen them competing impressively for business – regardless of what’s happening elsewhere in the world,” she said.

“This isn’t guaranteed to last though, so anyone in the market for a mortgage might want to get their skates on.”