The Consumer Prices Index showed last month, in December 2013 that the UK’s inflation rate fell to 2% in December, compared to 2.1% the month before.
These are noteworthy news because this is the first time that inflation has reached such levels since November 2009. The government has set a target of 2% which has not been accomplished for the last 4 years.
However, the Retail Prices Index has shown that there has been a rise from 2.6% to 2.7% inflation in November.
The cause for this fall has been the slower increases in food prices, according to the National Statistics Office. Furthermore, it claimed that the since 2006, this has been the smallest rise in prices of both food and non-alcoholic drinks. In particular, there was a slowdown in the increase of fruit prices, especially bananas and grapes, and meat prices as well.
Furthermore, economists believe the inflation fall was helped by Christmas discounts, specifically for toys and computer games, which fell faster than in December 2012.
However, other commodity prices increased. For example, gas, electricity and petrol were all rising, having a growing effect on inflation. Yet, those figures were released one day before the big supermarket chains Tesco and Asda were planning to reduce their petrol and diesel prices by up to 2p per litre.
A relief for motorists would be that they will have to pay the lowest price for diesel since July 2012.
Prime Minister David Cameron also welcomed the return to the 2% inflation target. He said that this would mean positive economic growth, more jobs created and therefore, overall security for those who work hard.
The news about inflation fall were also welcomed by Labour’s Treasury spokeswoman Catherine McKinnell, who however added that wages are still not rising as fast as prices do and therefore, the cost-of-living crisis continues.
Economists predict that this would decrease the pressure on the Bank of England to raise interest rates. Expectations are that inflation will stay close to the 2% target for some time in the future.
The news of slow price rise have been a relief for policy makers in the Bank of England because they would not have to consider higher interest rates for a while.
An important announcement that the Bank of England governor Mark Carney made was that the Bank will not increase interest rates until the current unemployment rate of 7.4% falls below 7%.