Whilst the Consumer Prices Index (CPI) measure of price inflation remains stubbornly above the government target of 2%, there are some indications that inflation is starting to fall.
When the VAT rise from last January is removed from the calculation this month, we expect to see another fall in CPI.
The latest BRC-Nielsen Shop Price Index has found that non-food price inflation has already dropped to zero in January 2012, from 0.3% the previous month.
Food inflation fell to 3.7% in January, from 4.2% in December, suggesting that this element of the inflation basket is also heading downwards.
Within the Shop Price Index, various goods are already cheaper than they were twelve months earlier. Clothing, furniture and electrical goods have all fallen in price over the past year as the UK economy struggles to grow.
These figures should remove any perceived constraints on the Bank of England to extend their programme of quantitative easing at a Monetary Policy Committee meeting in the near future – possibly as soon as this week.
After a period of high price inflation, consumers and investors should be prepared for a spell of low inflation or even deflation.
Photo credit: Flickr/ccarlstead
