Inflation falls to 2% target
Inflation has fallen to its target level of 2% for the first time since November 2009, according to the Office for National Statistics.
The ONS says that inflation measured by the Consumer Prices Index (CPI) fell from 2.1% in November 2013 to 2% the following month.
The greatest downward pressures came from food and non-alcoholic beverages and recreational goods and services. However, the ONS points out that these were partially offset by upward pressure from motor fuels and an overall increase in the price of gas and electricity.
Samuel Tombs, UK economist at Capital Economics, says food price inflation was the prime contributor to the downward movement, having fallen sharply from 2.8% to 1.9%.
He adds that the inflation rates looks set to continue lower over the coming months as utility companies pass on tax cuts in the spring and agricultural commodity price falls filter through.
"[Inflation falling will be] helping real earnings to finally recovery and enabling the MPC to leave interest rates on hold this year regardless of the unemployment figures," says Tombs.
This article was written for our sister website Money Observer
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).
The Consumer Price Index is the official measure of inflation adopted by the government to set its target. When commentators refer to changes in inflation, they’re actually referring to the CPI. In the June 2010 Budget, Chancellor announced the government’s intention to also use the CPI for the price indexation of benefits, tax credits and public sector pensions from April 2011. (See also Retail Prices Index).