The consumer price index eased to 3% last month from a five-year high of 3.1% in November, raising the prospect that inflation may have peaked, easing some of the pressure on United Kingdom consumers.
"In January previous year consumer price inflation stood at just 1.8%, but rose to what now looks like a peak of 3.1% in November".
The government wants to see rates come down to lower its borrowing costs and stimulate the economy.
The 3.1% logged in November was the fastest since early 2012.
In a separate report in December-and one more directly affecting construction and development-the Federal Reserve Bank of St. Louis reported that the price of construction materials was slightly down for the month.
Core inflation that excludes energy, food, alcoholic beverages and tobacco, slowed to 2.5% in December from 2.7% in November.
CPI hit 3.1 per cent in November, prompting Bank of England governor Mark Carney to write to the Treasury, explaining the rise. "The dip in inflation for primary food articles in the WPI for December might signal some correction in the CPI inflation for food items in the ongoing month", says Aditi Nayar, principal economist, Icra.
The German 10-year bond yields, which move inversely to its price, fell almost 1-1/2 basis points to 0.57 percent, the yield on 30-year note also slid 1-1/2 basis points to 1.32 percent and the yield on short-term 2-year traded tad 1/2 basis point lower at -0.57 percent by 08:20GMT. The energy index, which rose sharply in November, declined in December as the price of gasoline decreased.
Nossek warned the rising oil price could prove to be the main sticking point, posing the risk of stagflation.
"Indeed, barring a big pick-up in wage growth in next week's labour market figures, there is little in the latest economic data to justify another rate hike at the MPC's meeting on 8th February".
It also stated that the rural index rose by 0.54 per cent in December, down by 0.18 per cent when compared with 0.72 per cent in November.
"Such a scenario could represent a real challenge to United Kingdom consumers, as with real GDP growth somewhat muted and no wage hike pressures, the bank could look through rising commodity prices as short-term, creating the risk of stagflation for savers and investors". "In such a scenario, any adverse supply shock due to geopolitical developments could push up prices even further", the RBI policy statement added.
On a regional basis, London remained the region with the highest average house price at GBP482,000, followed by the South East and the East of England.
Food and non-alcoholic drinks also recorded smaller monthly growth of 0.6%, down from 0.8% in December 2016.