The Consumer Price index (CPI) inflation rate fell to 2% in December down from 2.1% in November finally hitting the Bank of England’s target medium term figure for inflation.
CPI is the measure used by Government for targeting inflation and this is the first time since November 2009 the inflation has been at or below this target. CPIH annual inflation, which is the measure of consumer price inflation including owner occupiers’ housing costs, was actually lower at 1.9% in December.
According to the Office for National Statistics (ONS) the largest contributions to the fall in inflation came from prices for food, non-alcoholic beverages and recreational goods and services. However, these were partially offset by an upward contribution from motor fuels.
This vindicates the Bank of England’s dogged insistence for the past 4 years that inflation was being caused by external rises in the cost of imports that we have no control over rather than any domestic demand lead inflation. Had we seen the Bank of England react to this inflation by increasing interest rates before the recovery, as called for by many sections of the press, we could have seen an even deeper recession than we have already.
The good news for Landlords with mortgages or commercial loans is that for the time being there is no pressure from inflation (the main economic target) to increase interest rates.
The main stream popular press are reporting that the next thing to worry about is unemployment dropping below 7% from its current 7.4% level. The 7% figure was only used as an economic reference by Mark Carney the governor of The Bank of England to show that we should not consider raising interest rates until the economy has hit this measure. It is NOT a figure that would trigger interest rate rises on its own.
The Prime Minister David Cameron said, “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.”