Belfast Telegraph

Relief as inflation plunges to 4.2% after prices war

By Jamie Grierson and Margaret Canning

Inflation has fallen - and is set to keep going down as last year's Vat increase is absorbed and oil prices come down, economists have forecast.

Consumer prices index (CPI) inflation dropped to 4.2% in December from 4.8% in November, the Office for National Statistics (ONS) said yesterday.

Rampant high-street promotions in the run-up to Christmas triggered the drop, which saw a 2.8% plunge in the price of clothing and footwear.

But a supermarket price war had less impact than expected, as food prices rose by 1.4% month on month.

The drop in the rate of inflation in December eases pressure on household budgets after a long period of high prices and slow wage growth.

Dr Esmond Birnie, PricewaterhouseCoopers (PwC) chief economist in Northern Ireland, said a 0.6% fall in the cost of fuel also contributed to the decrease.

Factors including price drops by UK energy providers like EON and Npower would ensure the consumer-friendly trend continues, he added.

Dr Birnie said: "Overall, the decline in inflation is good news for beleaguered households, with further falls likely as last year's Vat increase and this week's energy price cuts work their way through the system.

"And with interest rates likely to hold at 0.5% for the foreseeable future, the Bank's 2% inflation target should be in sight - further good news for householders and borrowers."

Northern Bank chief economist Angela McGowan said falling inflation would be given a warm welcome by the Bank of England and consumers alike.

"For households, price pressures will ease and this should help to improve consumer confidence and those anaemic levels of domestic demand that we have been experiencing for some time now. For the Bank of England, falling inflation justifies any further monetary stimulus by way of quantitative easing."

She also predicted further falls in inflation for the rest of the year.