Inflation falls to 3.6 per cent in January

Inflation fell sharply last month to a 14-month low of 3.6 per cent, according to figures from the Office for National Statistics (ONS).

The Consumer Prices Index (CPI) dropped by a massive 0.6 per cent in January from 4.2 per cent in December.

The Retail Prices Index (RPI), which includes mortgage interest payments, also fell from 4.8 per cent to 3.9 per cent in January.

The main reason for the sharp drop-off is that last January’s VAT rise from 17.5 per cent to 20 per cent has now been fully included in annual inflation comparisons, so it is no longer skewing the data.

Stable petrol prices and a fall in energy bills have also helped bringing inflation down.

'Inflation fell significantly in January for the second month in a row, which is good news for family budgets. The Bank of England and other forecasters expect inflation to keep falling through this year, providing additional relief,' says a spokesperson for the Treasury.

However, other commentators disagree. 

'Part of the latest fall in inflation can be attributed to falling utility and fuel prices, which though welcome, can hardly be relied upon in future months,' says Ranvir Singh, chief executive of market analysts RANsquawk.

'Optimists are now forecasting that CPI could tumble to the Bank of England’s target rate of 2 per cent in time for this summer’s London Olympics.'

He adds: 'But even if inflation does continue to freefall, there is no guarantee that it’ll be matched by economic growth. And as tomorrow’s unemployment figures are likely to confirm, the persistently weak labour market and tight credit conditions will continue to hold back consumer spending.'

This was written for our sister website, Moneywise

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