The Office for National Statistics (ONS) has confirmed that the Consumer Prices Index (CPI) rose by 4 per cent in the 12 months to December 2023, marking the first time the rate has increased since February 2023.

The unexpected uptick was driven primarily by increases in tobacco, after the Chancellor increased duty on tobacco products in the Autumn Statement last November.

PensionBee director of public affairs, Becky O’Connor, highlighted the surprise uptick as demonstration that “nothing can be taken for granted with the economy”, warning that for those trying to put money away for the future, a rise in inflation makes it all the more important that they find the best savings rate possible.

“If investing for the long term, this rise highlights the benefits of investing for growth, to preserve the real value of money in years to come and protect it against long-run inflation,” she continued.

“Anyone relying on the state pension or a fixed rate annuity may feel dismay that the expected further decline in inflation has not yet materialised. They are still waiting for a clear sense of relief.”

However, Broadstone head of market engagement, Simon Kew, suggested that, for pension schemes, the faster than expected fall in inflation over the past six months could reduce the scrutiny on discretionary increases as member benefits are more likely to keep pace with the cost of living.

“After consecutive bumper increases to the state pension, retirees without defined benefit (DB) pensions often take a keen interest in the inflation print to see whether it could drive another significant triple lock uprating,” he continued.

“But with inflation looking to be coming under control, this group should instead be keeping tabs on the earnings figure over the coming months.”

Looking ahead, Kew also clarified that despite the latest increase, further falls are anticipated, with some economists even predicting inflation to drop below the Bank of England’s target of 2 per cent in the first half of 2024 earlier this week.

"In spite of the rise in December, inflation is still projected to weaken over the course of the year, stoking predictions of rate cuts despite the Bank of England’s public pushbacks against these market expectations," he continued.

This was echoed by Standard Life managing director for retail, Dean Butler, who said that while we might now have to wait slightly longer for the financial pressures to ease, “hopefully this month’s figure is a blip, and we’ll see the forecasted fall in inflation soon”.

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