Inflation falls to 4.2 per cent in December
Tuesday, 17 January 2012 10:00
The consumer prices index (CPI) measure of inflation fell in December to 4.2 per cent from 4.8 per cent in November, according to the latest official figures released by the Office for National Statistics (ONS) today.
The last time there was a larger drop in the annual rate of inflation was between November and December 2008. The fall was influenced by downward pressures in fuel, clothes and gas. Clothes fell by 2.8 per cent and there was a record drop in the cost of alcohol and tobacco.
The drop in inflation was widely expected as the impact of high commodity prices and utility bills became less of an influence. Increased competition by retailers and supermarkets in the run up to Christmas also contributed to a fall in inflation.
Howard Archer, Chief UK & European Economist for IHS Global said: "December’s marked fall in consumer price inflation is unequivocal good news for the struggling economy as it eases the squeeze on consumers’ purchasing power and facilitates further Bank of England Quantitative Easing in February.
"The marked dip in inflation in December was clearly helped by the earlier and increased discounting by retailers in the run-up to Christmas and in clearance sales, as well as by much-reduced year-on-year increases in fuel, transport and energy prices."
Part of the reason that there was such a drop in inflation this month is because between November and December 2010 the rise of one per cent in the consumer prices index equalled the largest ever recorded between two months.
Kevin Mountford, head of banking, at MoneySupermarket.com, said: “The rising cost of living has had a major impact on UK household budgets for the last 12 months and signs that this is beginning to reduce is very welcome indeed. However, despite inflation falling month on month, prices are still high."
The retail prices index (RPI) measure of inflation, which includes the cost of mortgage interest payments, also fell in December to 4.8 per cent from 5.2 per cent in November to
Most economists expect inflation to continue to fall sharply in the first six months of 2012. January’s figures should continue the sharp fall as the effect of the increase of VAT to 20 per cent in January 2011 drops off of the figures. Most forecasts predict that inflation will drop to around 2.5 per cent by May, in some rare welcome news for UK consumers.
Howard Archer said: “We suspect that consumer price inflation could fall below 3.0% in the second quarter and will be down to the Bank England’s target level of 2.0% by the end of 2012.”
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