The rate of price inflation has fallen to 4.8% for twelve months to November.
The Consumer Prices Index (CPI) measure of inflation fell from 5% in October to 4.8% in November.
This follows a previous monthly fall from 5.2%, indicating the start of a reasonably strong downwards trend.
Inflation as measured by the Retail Prices Index (RPI) also fell, from 5.4% in October to 5.2% in November.
Both measures of price inflation remain well above the government target of 2% for the Consumer Prices Index.
Falls in the pace of inflation were helped by slower growth in food and non-alcoholic drink prices. The slowdown in price inflation this month was in line with expectations from economists.
Whilst price inflation remains stubbornly high, it is positive to see signs it is starting to fall back towards the government target. Savers in particular, who have experienced eroded savings due to low interest rates and high price inflation, will welcome this news.
We continue to believe that price inflation will fall during 2012, particularly once the VAT rise is removed from the calculation in January. We share the views of the Bank of England who are forecasting inflation will fall below 2% during the next 18 months.
Despite inflation having appeared to have reached its peak a few months ago, we continue to believe that interest rates in the UK will remain at their historic low throughout 2012.
Various economic indicators remain weak and until we see the full impact of public spending austerity measures it is unlikely the Bank will start to raise interest rates, particularly if inflation is reduced to more reasonable levels.
Photo credit: Flickr/james_michael_hill
