Inflation fell to 0.3 per cent in January, the lowest level since records began in 1989. As the above chart shows, the government’s target of two per cent CPI inflation is now a long way off. The ONS has attributed the slow down to falling fuel and food prices — the latter is thanks to the on-going supermarket price wars.
As Citibank’s Michael Saunders explains in his invaluable economics briefing (pdf), the weakness is concentrated in food, fuel and energy. Excluding energy, tobacco and alcohol, the year-on-year inflation level was 1.4 per cent, up from 1.3 per cent a year ago:
Although inflation year-on-year has already sunk to a record low, the Bank of England said last week we could see inflation fall ever further into negative territory for the first time in 50 years. Saunders agrees with this prediction, noting that he expects it to drop as the reduced cost of energy filters through to household bills.
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