Inflation plummets as high street sales help the consumer

Tim Wallace
Follow Tim
CONSUMER prices increased at their slowest pace for six months in December, the Office for National Statistics revealed yesterday, with alcohol and tobacco prices down in the month and fuel rises slowing.

The headline consumer price index increased by 4.2 per cent in the year to December – down from 4.8 per cent the month before, representing the largest fall in pace in three years.

Despite the fall, inflation remains more than twice the two per cent target Bank of England governor Mervyn King (left) is supposed to aim for.

The cost of living, measured by the retail price index, rose by 4.8 per cent in the 12-month period, down from 5.2 per cent in the year to November.

Meanwhile the tax and price index, which accounts for direct tax, rose by 4.5 per cent, down from 4.8 per cent.

Alcoholic beverages recorded their largest monthly fall ever, at 3.1 per cent, with wine prices down 3.3 per cent. spirits falling 4.4 per cent and beer prices down 1.7 per cent.

Communications such as mobile telephones saw a record rise of 6.6 per cent over the year.

Economists believe the overall fall in inflation is set to continue into 2012.

“This should gather pace over the next couple of months with temporary factors, most notably the VAT rise, falling out of the year-on-year calculation,” said Nida Ali from the Ernst and Young Item Club.

“We expect CPI inflation to be back at the two per cent target by this autumn. There should still be plenty of room for the MPC to loosen monetary policy further this year.”

Booze and togs push down cost of living