Fall in inflation brings rare piece of positive economic news

December 13, 2011
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Inflation fell from 5% to 4.8% last month, raising hopes that price rises may have peaked while offering a rare snippet of positive economic news. 

Economists are forecasting a significant drop in inflation next year, with one today predicting it will “fall like a stone” from now on.

The Office for National Statistics (ONS) said the fall was partly due to a slowdown in food and non-alcoholic drink price increases. Cereals and bread prices actually fell – by 1% – compared with a 1.9% increase a year ago.

Vegetable prices also fell by 1%, their largest drop for a decade, while sugar, jam, chocolate and sweets were also cheaper last month.

The ONS figures also showed that the rate of increase in transport, clothing and furniture costs also eased.

However, the Consumer Prices Index (CPI) inflation figure remains well above the Bank of England’s target of 2%. Measured using the Retail Prices Index (RPI) – which includes mortgage interest payments – inflation fell to 5.2% from 5.4%.

Vicky Redwood of Capital Economics told the BBC: “November’s UK inflation figures provide further hope that inflation has now passed its peak and could soon fall pretty sharply.

“There is still a lingering risk that inflation picks up again in December, but come January – when the VAT rise drops out – it should start to fall like a stone.

“We still think that inflation will be below its target by the autumn, before dropping to 1% or lower.”

However, TUC general secretary Brendan Barber, warned there were still problems on the horizon.

“Last month’s drop in inflation offers some respite for people over the festive period,” he said.

“But with pay growth under 2%, people are still getting poorer and millions of families are facing a very tough Christmas this year.

“It will take many more months of falling inflation, and far higher wage increases, before this long and painful period of real terms pay cuts comes to an end.”

 

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