Oil prices are down, wholesale gas prices are down, so why isn’t inflation falling a lot faster than it is? The Consumer Prices Index (CPI) for December, announced this morning, stood at 10.5 per cent, down from 10.7 per cent in November and 11.1 per cent in October – a welcome boost but still way, way above the Bank of England’s target of 2 per cent. Petrol and also clothing were down in price, but they were nearly cancelled out by rising food prices. Food prices in the year to December rose by 16.8 per cent, which was up on December’s 16.4 per cent.

The good news is that fuel, like other raw materials, is a leading indicator and should point to further falls in the inflation index in the months ahead. The pound is stronger which should temper inflation in imports. But in the meantime the uncomfortable reality is that inflation remains over 10 per cent at a time when the government is trying to avoid ceding to public sector pay demands.

Unions this week have shown that they are in no mood to compromise and nor are they are on the point of capitulation. In spite of having already lost more money than they are likely to gain in a pay rise, rail workers have again voted this week for two further strikes on 1 and 3 February. Nurses and ambulance staff also have more strikes lined up. In bargaining for pay rises, rail unions have tended to point to the Retail Prices Index (RPI) rather than the CPI – unsurprising, perhaps, as it tends to be higher, and because it is the metric used to determine rail ticket prices. The RPI for December stood at 13.2 per cent. As for NHS staff, pay demands have been boosted by yesterday’s news of an increasing differential between public and private sector pay, the former rising 3 per cent over the past year and the latter 7 per cent – although that rather ignores the plunge in private sector pay during the pandemic. Private sector wages are still recovering from a sharp fall in 2020.

Today’s CPI figure will do little to shift expectations for interest rates, which most believe have yet to reach their peak. But by the middle of the year we ought to be in a very different place, with inflation falling sharply and the threat of further interest rate rises removed.

But we have to get there first. There is plenty of fuel in today’s inflation figures to fire more wage requests – and the government will have to remain resolute if it is to resist those demands.