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Inflation rate falls to two per cent

'Inflation' written on chalkboard14/1/14

By David Clement

An easing in the rate of increase for food prices last month helped inflation tumble to two per cent for the first time in four years.

The inflation rate of two per cent hit the Bank of England's target rate, according to the Office for National Statistics (ONS).

December's data showed the Consumer Prices Index (CPI) dipped for the sixth consecutive month to reach its lowest level since November 2009, when it was 1.9 per cent.

The two per cent target was last achieved in April 2006.

Pressure eased on Bank of England

It eases pressure on the Bank of England to revise its flagship low interest rate policy which could have been unsustainable if inflation appeared likely to spiral out of control.

The latest drop defied fears that gas and electricity price hikes may spark a small rise from November's 2.1 per cent figure.

The steep increases will inevitably create upward pressure but many of the tariff rises had not yet taken effect when the latest data was collected.

The usual month-on-month rise in the cost of food and alcoholic beverages - the smallest since 2006 - meant the annual rate of inflation in this sector slowed to 1.9 per cent.

This welcome development for household budgets in the run-up to Christmas was the lowest rate since May 2010.

Price of fish goes down

The major downward contributions came from fruit and meat - while the price of fish in December was lower than the previous month.

Beverages (coffee, tea and cocoa) were cheaper last month than they were the year before.

Games, toys and hobby-related products also saw price falls - with reductions in computer games made for older platforms.

However, inflation accelerated for bread and cereals and rising petrol prices had an upward effect on inflation - though the increase in the rate of air fares was lower than in 2012.

A separate measure of inflation, the Retail Prices Index, rose to 2.7 per cent (from 2.6 per cent in November).

A new measure of inflation

And a new measure of inflation, CPIH - which includes owner-occupiers' housing costs - was unchanged at 1.9 per cent.

Another new measure, RPIJ - which uses a geometric formula instead of an arithmetical one - was also unchanged at two per cent.

Prime Minister David Cameron said in a Twitter message: "It's welcome news that inflation is down and on target.

"As the economy grows and jobs are created this means more security for hard-working people."

Labour Treasury spokeswoman Catherine McKinnell said working people were on average £1,600 a year worse off than they were three years ago.

She added: "This small fall in the inflation rate is welcome but, with prices still rising more than twice as fast as wages, the cost-of-living crisis continues."



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