Inflation falls
- 00:02:07
- ITN
Inflation falls
Heavy discounting by retailers and the VAT reduction has seen the biggest fall in inflation since the recession of the early 1990s. The fall in the annual rate of UK inflation - as measured by the Consumer Prices Index (CPI) - fell to 3.1 per cent in December from 4.1 per cent the previous month, the Office for National Statistics (ONS) said. CPI has fallen significantly from a peak of 5.2 per cent last September and the drop also marked the first time inflation fell in December since records began, the organisation said. Although the fall is less than experts were expecting - some predicted a drop to as low as 2.6 per cent - the decrease will heighten fears over deflation as the impending recession is expected to see further falls over the year ahead. But while policymakers have been striving to bring inflation back down to the Government's 2 per cent target, it is now feared that the impending recession could see the CPI fall too far below the 2 per cent goal and possibly lead to a period of deflation. And the headline rate of Retail Prices Index (RPI) inflation, which includes mortgage interest payments, plummeted to 0.9 per cent last month, from 3 per cent in November. The ONS said the underlying rate of inflation fell to 2.8 per cent in December from 3.9 per cent the previous month - its fastest rate in more than 28 years, as house price declines and the recent dramatic interest rate cuts added to the VAT impact. Graeme Leach, chief economist at the Institute of Directors, said: "Inflation is most definitely yesterday's story. "Unless the huge stimulus from the VAT reduction, record low interest rates, a falling pound and the collapse in the oil price begin to take effect soon, the UK will be staring deflation in the face."
ITN | January 20, 2009
