Sudden drop in inflation announced by ONS
George Osborne is set to receive a letter from Bank of England Governor Mark Carney explaining why inflation has fallen to an all-time low.
CPI inflation has fallen four times in five consecutive month, hitting a record low of 0.5% in December 2014 (today’s figures), from November’s inflation rate of 1%, according to the Office for National Statistics.
December’s 0.5% is the lowest level recorded by the ONS since records began, equalling a previous low of 0.5% in May 2000.
Rules introduced in 2013 mean that when inflation is more than 1% below the Bank of England’s 2% inflation target, the governor must write a letter to the chancellor to explain why the figure has deviated so much from the target.
Why is inflation so low? And when will it bounce back?
The drop in the rate of inflation is down to falling food and oil prices.
Analysts said inflation is likely to fall further in the coming year, and the UK could even face deflation – a situation currently being seen in many Eurozone countries.
Osborne was positive about the announcement (as is tradition, whether the rate goes up or down).
Inflation is 0.5%- lowest level in modern times.Welcome news with family budgets going further& economic recovery starting to be widely felt
— George Osborne (@George_Osborne) January 13, 2015
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Here’s an explanation of what that really means.
@DuncanWeldonindeed, truly good news would be 2% CPI inflation rate with 4.5% nominal pay growth. Beware today’s spin
— John Philpott (@JobsEconomist) January 13, 2015
However, despite the spin, Osborne is partly right.
While the news might not be positive for the economy as a whole, it does mean more money in the pockets of ordinary workers.
The 0.5% inflation figure released today has prompted several economic analysts to say it is now unlikely the Bank will raise its base rate this year, contrary to previous expectations that we’d see a rate hike in 2015.
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