–Dec CPI +0.4% m/m; +4.2% y/y vs Nov 4.8% y/y; in line with median
–Dec core CPI +0.5% m/m; +3.0% y/y vs Nov 3.2% y/y; in line with median
–Dec RPI +0.4% m/m; +4.8% y/y; Dec RPIX +0.4% m/m; +5.0% y/y

LONDON (MNI) – Consumer price inflation fell sharply as expected in
December, supporting the Bank of England’s view that the recent increase
was temporary and that inflation will post significant falls over the
coming months, according to figures released by National Statistics
Tuesday.

Consumer prices rose 0.4% on the month in December and were up 4.2%
on the year, down from 4.8% in November. This was in line with the
median forecast and was the largest fall in inflation since April 2009.

The Bank of England, which has in recent years underestimated the
strength of inflation, will be glad to see that inflation fell to 4.7%
in Q4, bang in line with its latest forecast in the November Inflation
Report. As the effect of the hike in VAT drops out of the annual
comparison next year, the Bank of England is forecasting inflation to
fall sharply again in Q1 to 3.4%.

While inflation was down sharply, there was nothing too surprising
in the report. The main reason for the decline was more to do with what
happened last year than this year. December 2010 saw a sharp rise in
the cost of petrol, in contrast to December 2011 where prices were down
1.1 pence per litre.

Gas prices were unchanged in December compared with a sharp rise of
4.6% in December 2010 putting downward pressure on overall inflation.
Similarly, electricity prices fell in December 2011 compared with a rise
in the previous year.

There was also downward pressure from clothing and footwear, where
prices fell 2.8% between November and December compared with a decline
of 1.9% in the same period a year earlier. This tallies with anecdotal
evidence of retailers bringing forward sales even earlier than usual.

Core inflation, which strips out food, tobacco, beverages and
petrol fell from 3.2% in November to 3% in December, in line with the
median forecast.

–London bureau: 0044 20 7862 7491; email: drobinson@marketnews.com

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