Financial News

  • 15 January 2014, 14:12

Inflation Hits Bank Of England Target Of 2%

Lower food prices helped inflation fall back to the Bank of England's target rate of 2% for the first time in over four years in December.

The CPI measure eased by 0.1% month-on-month, according to the Office for National Statistics (ONS), with lower meat and fruit costs the biggest contributor.

The ONS said that the collection of the data happened too early in the month to capture reported discounting by retailers in the days before Christmas.

However, there was likely to be a greater contribution to inflation from rising energy bills in the months ahead after only a minimal impact in December.

When housing costs were included, the RPImeasure of inflation rose to 2.7% in December from 2.6% the previous month.

Annual inflation has exceeded the Bank's 2% target every month since December 2009, eroding the spending power of households who have seen wage growth either largely remaining stagnant or rise at a substantially lower rate.

But the sixth successive monthly drop in inflation eases pressure on the Bank of England - which would have to reconsider its flagship low interest rate policies should inflation look likely to spiral out of control.

As things stand, the Bank will only consider the possibility of raising borrowing costs when the jobless rate falls to 7%.

However, with the jobless rate now tipped to reach that milestone this year, the easing of inflation makes it less likely the Bank would even contemplate a rate rise in 2014.

The return to the 2% inflation target was welcomed by Prime Minister David Cameron who tweeted: "It's welcome news that inflation is down and on target. As the economy grows and jobs are created this means more security for hard-working people."

Labour Treasury spokeswoman Catherine McKinnell said: "This small fall in the inflation rate is welcome, but with prices still rising more than twice as fast as wages the cost-of-living crisis continues.

"After three damaging years of flat-lining, working people are on average 1,600 a year worse off under the Tories."

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