Inflation as measured by the consumer prices index (CPI) fell below the Bank of England’s 2 per cent target level for the first time in over four years last month, further supporting Governor Mark Carney’s message earlier this month that there is no rush to raise interest rates.
According to figures published today (February 18) by the Office for National Statistics (ONS), consumer prices rose 1.9 per cent on the year in January, slowing from December’s rate of 2.0 per cent, making it the smallest increase since 2009 when CPI growth dropped as low as 1.1 per cent.
However, the ONS added, inflation measured by the Retail Prices Index (RPI), which is historically used to calculate wage rises, rose to 2.8 per cent from 2.7 per cent in December, mainly because of rises in insurance costs, air fares and fuel prices.
The fall in CPI inflation, however, was driven by a decrease in recreational goods and services, such as entry to attractions, and household goods, as well as decreases in the price of alcohol and tobacco.
The CPI rate has been falling steadily recently after reaching a peak of 5.2 per cent in September 2011 and it is likely that it will continue to fall in the coming months, boosting the hope that wage growth will outpace it this year, thereby easing the pressure on household budgets.
If, as predicted, real earnings growth rises above the last recorded rate of 0.9 per cent by the end of the year, it will allow the Bank’s Monetary Policy Committee to keep interest rates where they are until well into 2015.
Commenting on the news, Prime Minister David Cameron said that the figures supply more evidence that the Government’s economic strategy is working.