Inflation drops again in November

hot air baloon

Inflation has fallen for the second month in a row. The consumer prices index (CPI) is down 0.2% from 5% in October to 4.8% in November.

The secondary measure of inflation, the retail prices index (RPI), which includes mortgage payments and council tax, has also dropped 0.2%. It is now 5.2%.

Vicky Redwood, chief UK economist for Capital Economics, says anecdotal evidence suggests that low consumer demand is forcing retailers to discount prices.

CPI slightly dropped in November thanks to reductions in prices of food, petrol and household costs.

Despite the slight changes in both inflation measures, inflation remains over double the Bank of England's 2% target inflation rate.

"Inflation has fallen but this is nothing more than a flicker of light in the pitch-dark roll-call of the global economy," says Marcus Bullus, trading director at stockbrokers MB Capital. He says these figures will offer little help to the markets.

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Savers' misery

Savers continue to be adversely affected, with basic-rate taxpayers now needing to find accounts paying 6.01% to beat inflation. A higher-rate taxpayer would need to find an account paying 8.01% interest.


"Over the past year, the number of savings accounts that beat inflation for basic-rate taxpayers has dropped successively from 57 to absolutely none, which must leave savers wondering why they save at all," says Sylvia Waycot, spokesperson for Moneyfacts.

"This means more and more people are falling into the 'eroding spending power trap', which has already wiped nearly £800 off the spending power of £10,000 in just five years," Waycot adds.

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Future predictions

The inflation rate is expected to fall further in 2012.

"There is still a lingering risk that inflation will pick up again in December, but come January - when the VAT rise drops out - it should start to fall like a stone. We still think inflation will be below its target by the autumn, before dropping to 1% or lower," says Redwood.


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