The rate at which prices are rising unexpectedly ticked up to 4% in December, from 3.9% in November.
A big factor was a rise in tobacco and alcohol prices.
In a bid to curb inflation, the Bank of England increased interest rates to 5.25%, but has held rates at its last three meetings.
Inflation is the increase in the price of something over time.
If a bottle of milk costs £1 but £1.05 12 months later, then annual milk inflation is 5%.
The Office for National Statistics (ONS) tracks the prices of hundreds of everyday items in an imaginary "basket of goods".
The basket is regularly updated to reflect shopping trends, with the most recent changes adding frozen berries and removing alcopops.
Each month's inflation figure shows how much these prices have risen since the same date last year.
You can calculate inflation in various ways, but the main "headline" measure is the Consumer Prices Index (CPI).
CPI was 4% in the year to December, up from 3.9% in November, which was an unexpected increase.
Economists say one important factor behind the rise was higher tobacco duty which pushed up the cost of cigarettes.
"Core inflation" excludes the price of energy, food, alcohol and tobacco.
It remained steady at 5.1% in the year to December.
The Bank of England considers this number as well as CPI when deciding whether to change interest rates.
Soaring food and energy bills helped drive inflation up.
Oil and gas were in greater demand after Covid. The war in Ukraine meant less was available from Russia, putting further pressure on prices.
The conflict also reduced the amount of grain for sale, pushing up global food prices.
This effect was compounded in the UK by a shortage of vegetables, which took food inflation to a 45-year high.
Alcohol prices in restaurants and pubs also rose.
Your device may not support this visualisation
The Bank of England has a target to keep inflation at 2%, but the current rate is nearly double that.
The traditional response to rising inflation is to put up interest rates.
This makes borrowing more expensive, and means some people with mortgages see their monthly payments go up. Some saving rates also increase.
When people have less money to spend, they buy fewer things, reducing the demand for goods and slowing price rises.
Businesses also borrow less, making them less likely to create jobs; some may cut staff.
In August, the Bank increased interest rates for the 14th time in a row, taking the main rate to 5.25%.
It held rates at that level at its three subsequent meetings in September, November and December.
The fall in inflation in November had raised hopes that the Bank of England might cut interest rates sooner than expected.
But, announcing its December rate decision, the Bank said there was "still some way to go" to bring inflation down "all the way back to 2%", and suggested rates were likely to remain at 5.25% for an "extended period".
Lower inflation doesn't mean prices drop – it means they rise less quickly.
The Bank of England had already predicted that inflation would drop to about 4.5% by the end of 2023, and fall further in 2024.
Bank governor Andrew Bailey said it was "crucial that we see the job through" and get price rises back to the 2% target, because people "should trust that their hard-earned money maintains its value".
In October, the International Monetary Fund (IMF) predicted the UK would have the highest inflation rates of any G7 economy in both 2023 and 2024. As a result, it thought UK interest rates would remain relatively high until 2028.
In January 2023, Prime Minister Rishi Sunak said halving inflation by the end of 2023 was one of the government's five key pledges. It said it had met its target in October.
Official figures showed that – on average – regular pay excluding bonuses fell sharply from 7.3% to 6.6% in the three months to November, compared with the same period a year earlier.
Although this means earnings were not rising as quickly as they had been before, they were still outpacing inflation, so wages were growing in real terms.
However, unions point out that many workers have received smaller pay increases, which led to widespread strikes over pay.
The government previously argued that big pay rises could push inflation higher because companies might increase prices as a result.
Many other countries have also been experiencing a cost-of-living squeeze for similar reasons: increased energy costs, shortages of goods and materials, and the fallout from Covid.
The annual inflation rate for countries that use the euro was estimated to be 2.9% in the 12 months to December, up from 2.4% in November. The November figure was the lowest level for more than two years.
As in the UK, the European Central Bank (ECB) increased interest rates to try to bring rising prices under control.
On 14 September, it raised its key interest rate – the benchmark deposit rate – to 4%, a record high, but this is widely expected to be the last increase for a while.
Analysts are now discussing when it might cut rates.
In the US, inflation hit 3.4% over the year to December, rising from 3.1% a month earlier, and driven by higher costs for housing, dining out and car insurance.
At its December meeting, the US central bank kept its key interest rate unchanged between 5.25% and 5.5% for the third time. Rates remain at their highest level for more than two decades, but cuts are expected in 2024.
Iran summons Pakistan envoy after nine killed in retaliatory strikes
Rare N Korea footage shows teens sentenced over K-drama
Ex-flight attendant to be Japan Airlines president
Why these Taiwanese Americans flew home to vote
Full list of nominees for the British Academy Film Awards
Israel accused of targeting civilians in deadly West Bank strike
Iran shows missile capabilities with regional strikes
US Moon mission on course for fiery destruction
Step inside the 'pain cave', where rules are remade
The European city where selfies are 'awkward'
FBI investigation after ex-A&F boss sex claims
US voters react to Trump's commanding Iowa win
The human touch AI can't replicate
Why it's more important to be kind than attractive
The Star Trek episode that predicted a 2024 crisis
© 2024 BBC. The BBC is not responsible for the content of external sites. Read about our approach to external linking.
What is the UK inflation rate and how does it affect me? – BBC
Leave a comment