UK Inflation: Back to Target

After a long period in which it seemed Britain was a 3% inflation economy, rather than the 2% one consistent with the official target, consumer price inflation has come back to target for the first time in four years.

Its fall, from 2.9% in June and 2.7% as recently as September is good news, which eases the pressure for higher interest rates and reduces cost of living pressures. Other measures are also close to 2%. That is the rate for RPIJ, the retail prices index based on the Jevons method, while CPIH, including owner-occupiers’ housing costs, is 1.9%.

The exception is RPI inflation, which nudged up to 2.7% in December, from 2.6%, but the relationship between RPI and CPI is broadly what you would expect, the former showing rates 0.5 to 0.75 points above the latter.

CPI inflation fell in December because of downward pressure from food and alcoholic drink, as well as what the Office for National Statistics calls “recreational goods and services”. A small rise in petrol prices did not prevent the fall in inflation. More here.

This piece is cross-posted from EconomicsUK.com with permission.