UK inflation rate declines to 3%
\nPetrol pumps
\nA fall in petrol prices contributed to the fall in inflation<\/p>\n
Consumer Prices Index (CPI) inflation fell slightly in January to 3%, from 3.1% in December, figures have shown.<\/p>\n
CPI inflation has now fallen for four months in a row from a high of 5.2% in September, driven down by falls in energy costs and fuel prices.<\/p>\n
Retail Prices Index (RPI) inflation, which includes mortgage costs and is often used in pay negotiations, fell to 0.1% from December’s 0.9%.<\/p>\n
The drop in RPI may lead to pressure on employers to limit pay rises.<\/p>\n
‘Extraordinary occurrence’<\/p>\n
The headline RPI rate of 0.1% is the lowest rate it has been since 1960.<\/p>\n
In addition to falling energy prices, the reduction in VAT from 17.5% to 15%, announced in the pre-Budget report in November, also had an effect.<\/p>\n
Inflation<\/p>\n
The low level of RPI inflation could lead to some tricky wage negotiations.<\/p>\n
“A zero or negative RPI could result in the extraordinary occurrence of average pay increases also falling towards zero,” said John Philpott at the Chartered Institute of Personnel and Development.<\/p>\n
In light of the current strain on government finances, Mr Philpott called for a freeze on public sector pay.<\/p>\n
David Page, an economist at Investec, said wage growth would slow “quite markedly” this year.<\/p>\n
However, he added: “It will be very hard for firms to push through wages growth at a lower level than 1% or 2%.”<\/p>\n
‘Very disappointing’<\/p>\n
The modest decline in CPI was less than expected – the consensus forecast among analysts had been for an annual rate of 2.7%.<\/p>\n
The falls in energy bills were slightly offset by rises in the price of household equipment, such as furniture, and alcohol, clothing and footwear.<\/p>\n
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The smaller-than-expected drop was also due in part to a reluctance by retailers to slash prices further after heavy discounting in December.<\/p>\n
Jonathan Loynes at Capital Economics described the modest decline as a “temporary aberration reflecting the partial reversal of some very aggressive price discoun<\/p>\n","protected":false},"excerpt":{"rendered":"
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