The rate of inflation eased to 10.5% but remains close to a 40-year high as UK households continue to be squeezed by the cost of living crisis.
Inflation, which measures the rate at which prices rise, fell to 10.5% in the year to December, compared to 10.7% in November, according to the Office for National Statistics (ONS).
But the rate of inflation still remains close to a 40-year high as Brits continue to feel the squeeze.
The drop was due to fuel prices falling along with clothing and footwear prices, however, this was offset by rising costs in restaurants and hotels.
However, food prices continued to soar at the end of the year, reaching 16.9% in the 12 months to December.
Basics such as milk, cheese and egg saw the largest increases but costs for sugar, jam, honey, syrups, chocolate and soft drinks and juices also jumped.
Here are some examples of how the cost of food has risen in the past year.
The figures are based on the Consumer Prices Index (CPI) measure of inflation and have been published by the Office for National Statistics.
In each case, the figure is the percentage change in the average price over the 12 months to December 2022.
Low-fat milk 46%
Olive oil 39.5%
Whole milk 38.5%
Cheese and curd 32.6%
Pasta products and couscous 29.1%
Margarine and other vegetable fats 24.2%
Jams, marmalades and honey 24.2%
Sauces, condiments, salt, spices and culinary herbs 22.8%
Ready-made meals 21.7%
Frozen seafood 18.4%
Edible ices and ice cream 18%
Fresh or chilled fish 16.3%
Pizza and quiche 13.2%
Breakfast cereals and other cereal products 9.5%
Confectionery products 6.6%
Fresh or chilled fruit 6.4%
Dried fruit and nuts 5%
Restaurants and hotel prices also jumped in December along with a record rise in air fares.
Grant Fitzner, chief economist at the ONS, said: “Inflation eased slightly in December, although still at a very high level, with overall prices rising strongly during the last year as a whole.
“Prices at the pump fell notably in December, with the cost of clothing also dropping back slightly.
“However, this was offset by increases for coach and air fares as well as overnight hotel accommodation.
“Food costs continue to spike, with prices also rising in shops, cafes and restaurants.”
A slowdown in rising prices eases pressure on the Bank of England to continue raising interest rates to suppress demand in the economy.
50 in Feb, 25 in Mar then that’s probs it from BoE - headline inflation clearly peaked now & downside econ risks growing lends its hand to a slow but steady dovish turn from the Old Lady over Q1 pic.twitter.com/43RP08SyGn
— Michael Brown (@MrMBrown) January 18, 2023
Chancellor Jeremy Hunt said: “High inflation is a nightmare for family budgets, destroys business investment and leads to strike action, so however tough, we need to stick to our plan to bring it down.
“While any fall in inflation is welcome, we have a plan to go further and halve inflation this year, reduce debt and grow the economy – but it is vital that we take the difficult decisions needed and see the plan through.
“To help families in the meantime, we are providing an average of £3,500 of support for every household over this year and next.”
The number is down from a 41-year high of 11.1% recorded in October, meaning that today's figures could be the latest signal that the UK might have seen the worst of inflation.
What this means for household budgets
The headline inflation rate may be on the retreat, but double-digit price rises will still deliver a blow to disposable incomes, according to Alice Haine, personal finance analyst at Bestinvest.
She said: "High inflation has a corrosive effect on the real value of cash as it erodes purchasing power and eats into savings, forcing households to make spending cutbacks that will of course have consequences for many businesses too.
“Throw in higher borrowing costs, a rising tax burden and falling real wages – a driver of the intensifying industrial action – and most households won’t be feeling the benefits of an easing inflation rate just yet. Instead, careful budgeting will remain a priority for now as they strive to keep everyday costs in line.
“The other big threat is the risk of job loss. Unemployment levels have been incredibly low in recent times but as the economy flirts with recession, at some point companies will have to make difficult decisions around their staffing levels.
“Households that haven’t faced up to the reality of their dwindling purchasing power yet would be wise to examine their bank and credit card statements now to identify where they can cut back their own expenditure. With lockdown savings all but used up, turning to credit will become the only other option for some as high living costs persist – something already evident by the sharp rise in credit card borrowing in November.
“With property prices on the wane, and mortgage costs set to jump for 1.4 million households this year, taking a microscope to your spending will become key to ensure the essentials of life – such as housing, food and energy – can still be afforded and luxuries are carefully prioritised from what it is left.
“Living within your means, drawing up a solid budget you can stick to and doing an audit of your regular payments and subscriptions will all help to identify overspending patterns to ensure finances can stay robust in the long term as well as the short term.”
Helen Dickinson, chief executive of the British Retail Consortium, warned that prices would remain high despite the fall in the CPI rate of inflation.
She said pre-Christmas discounts had helped ease inflation in areas such as clothing, furniture and alcohol, but the Ukraine war was maintaining pressure on energy and food prices.
“While there is some indication that inflation may have reached its peak, prices will remain high in the coming months,” she said.
“Retailers are determined to support their customers throughout this cost-of-living crisis.
“They are keeping the price of many essentials affordable, expanding their value ranges, raising pay for their own staff and offering discounts for vulnerable groups.”
Watch: Inflation falls but Hunt says there’s still ‘long way to go’
Meanwhile, Jeremy Hunt’s attempt to explain rising inflation with a stack of empty coffee cups has been mocked online.
A social media video showing the chancellor ordering a flat white before explaining why costs are rising was criticised over its punctuation, maths and the failure to mention Brexit, the huge amounts of money pumped into the economy during the Covid-19 pandemic or the impact of Liz Truss’s economic policies.
The chancellor held up a cup marked £2.56 and said a year ago a coffee cost “around £2.50”, before holding up another with £2.86 on it, which he described as “nearly £3 a cup”.
Factors contributing to inflation which is “about 10%” – the latest figures for December put CPI inflation at 10.5% – included the supply chain squeeze after the pandemic, the war in Ukraine and persistently high energy prices.
High inflation means “unemployment going up, businesses failing, the pound in your pocket is worth less than it used to be”.
The Government’s aim to halve the inflation rate by the end of the year was listed as one of the “peoples (sic) priorities”.
Politics professor Tim Bale, from Queen Mary University of London, said the video is “a classic of the genre”.
In a tweet, he added: “I especially loved last year’s cup of coffee, costing £2.56, being described ‘as around £2.50’ as opposed to this year’s, costing £2.86, being described as ‘nearly £3.00’. (PS while I’m on, ‘Peoples Priorities’ is missing an apostrophe).”
London School of Economics media professor Charlie Beckett said the Treasury-produced video is an example of the “Conservatives using public money to produce propaganda”.
Tory former education secretary Kit Malthouse also questioned the content of the message with the comment: “Money supply?”
University of Nottingham politics emeritus professor Steven Fielding said: “I hope he recycled all those cups he wasted.”
Watch: How does inflation affect interest rates?