Tuesday, 20 January 2009

Inflation rate is falling

The inflation numbers for December are out. In the year to end of December CPI was 3.1% (down from 4.1% in November) and RPI was 0.9%, down from 3% in November. The big fall in RPI was due to mortgages getting cheaper because of the interest base rate being reduced from 4.5% to 3%. CPI fell less because it doesn't include mortgages; the main reason it fell was the VAT rate being reduced from 17.5% to 15%. This reduction is, of course, temporary; the rate will return to normal at the end of this year.

Perhaps the most telling thing about these numbers is that despite the UK being in the worst financial situation since the 1930s the CPI inflation rate is still substantially above its 2% target! In fact it is still in "letter writing" territory where the governor of the Bank of England has to write a letter of explanation to the chancellor of the exchequer.

BoE Link
BBC Link

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