Inflation reaches government target of 2% in December

The UK's inflation rate, as measured by the Consumer Prices Index, fell to 2% in December, down from 2.1% the month before.

It is the first time inflation has been at or below the government-set target of 2% since November 2009.

The Office for National Statistics said the fall was caused by slower increases in the prices of food.
Inflation as measured by the Retail Prices Index (RPI) rose to 2.7% from 2.6% in November.

The ONS said the rise in prices of both food and non-alcoholic drinks was the smallest it had been since 2006.

Phil Gooding from the ONS told the BBC that a slowdown in the increase of fruit and meat prices was behind the fall in the inflation rate.

However, rising petrol prices had an upward effect on inflation, the ONS said.

The ONS figures were published the day before supermarket chains Tesco and Asda plan to reduce their petrol and diesel prices by up to 2p a litre.

Asda said from Wednesday motorists would pay no more than 126.7p a litre for petrol and 133.7p a litre for diesel, its lowest price for diesel since July 2012.

'Welcome relief'

The return to the 2% inflation target was welcomed by Prime Minister David Cameron.

"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," he said.

Economists said the fall would ease pressure on the Bank of England to raise interest rates following the recent recovery in the economy.

Jeremy Cook, chief economist at currency exchange specialists, World First, said: "The lack of inflation will help stay their hand especially if the pace of job creation seen in the second half of last year also slows."

Chris Williamson, chief economist at Markit, said he now expected inflation to stay close to its 2% target for "some time to come".

"The easing in price pressures is a welcome relief to policy makers at the Bank of England and helps keep the spectre of higher interest rates at bay," he added.

Bank of England governor Mark Carney has indicated that the Bank will not raise interest rates until the unemployment rate, currently at 7.4%, falls below 7%.

Source : BBC News
www.bbc.co.uk/news/business-25726621