Inflation drops to 4.2%, more QE predicted

There was a small amount of relief for cash-strapped Brits yesterday (17 January 2012) as official figures revealed a sharp drop in the rate of inflation. End Quote

(1888PressRelease) January 20, 2012 - According to the Office for National Statistics, Consumer Prices Index (CPI) inflation fell to 4.2% in December from the 4.8% observed in the previous month.

It represents the largest monthly fall in nearly three years and the lowest level for six months. CPI reached a peak of 5.2% in September.

The fall was put down to retailers reducing prices in the build-up to Christmas, as well as a fall in petrol and energy prices.

Markit analyst Chris Williamson believes inflation will continue to fall in the next few months, freeing up some spare income for British households.

"The data therefore adds support to the Bank of England's expectation that inflation will drop below its two per cent target by the end of the year," he added.

Other experts believe that the Bank of England will see the fall as validation of its fiscal policy, prompting another round of quantitative easing. The fact that the latest economic forecasts suggest the UK is back in recession would appear to add further weight to this claim.

However, Saga director general Dr Ros Altmann says the inflation drop is "nothing to celebrate", as the cost of living is still rising - particularly for older people.

Data from Saga has shown that for the over-50s, who use a greater proportion of their income on essentials such as food and utilities, the inflation rate is more like 5.5%.

It also reveals that those aged between 65 and 74 have endured a cumulative inflation rate of 21% since early September.

"These figures show just how damaging inflation is for older people. With energy still taking up a large proportion of pensioner's spending, it is imperative that prices continue to drop and that people shop around for the best deals they can," Dr Altmann added.

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