Inflation falls sharply to 3.6%

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Inflation fell sharply last month to a 14-month low of 3.6%, according to figures from the Office for National Statistics (ONS).

The official measure of inflation, consumer prices index or CPI, dropped by a massive 0.6% in January from 4.2% in December.

The retail prices index (RPI), which includes mortgage interest payments, also fell from 4.8% to 3.9%.

The main reason for the sharp drop-off is that last January's VAT rise from 17.5% to 20% has now been fully included in annual inflation comparisons, so it is no longer skewing the data.

Stable petrol prices and a fall in energy bills have also helped bringing inflation down.

Good news for families

"Inflation fell significantly in January for the second month in a row, which is good news for family budgets. The Bank of England and other forecasters expect inflation to keep falling through this year, providing additional relief," says a spokesperson for the Treasury.

However, other commentators disagree. 

"Part of the latest fall in inflation can be attributed to falling utility and fuel prices, which though welcome, can hardly be relied upon in future months," says Ranvir Singh, chief executive of the market analysts RANsquawk.

"Optimists are now forecasting that CPI could tumble to the Bank of England's target rate of 2% in time for this summer's London Olympics.

"But even if inflation does continue to freefall, there is no guarantee that it'll be matched by economic growth. And as tomorrow's unemployment figures are likely to confirm, the persistently weak labour market and tight credit conditions will continue to hold back consumer spending," Singh warns.

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