LONDON - Consumer price inflation slowed sharply in December, due to lower fuel prices and a sharp drop in the cost of clothing, the Office for National Statistics said on Tuesday.


- Biggest one-month fall in CPI annual rate since April 2009, lowest rate since June 2011

- Lowest annual rate for transport CPI component since November 2010

- Highest annual rate for communication CPI component since records began in 1997



No major surprises. A strong deceleration. The first of three because next month we will get the first of the VAT related effects bearing down on inflation.

We should be pretty close to 3 percent inflation by Easter. Thereafter I'm more sceptical that inflation will continue to fall below the 2 percent target. But for now we knew that the 5 percent level was temporary and would unwind.

I don't think it makes any difference (in regard to QE). It's bang in line with Bank of England's projection so no impact on QE.


The figure was bang in line with expectations. This is the beginning of a downward trend that will see inflation fall back towards 3 percent by springtime as the VAT rise drops out and energy prices fall.

The inflation backdrop will improve going forward which will make it easier for the Bank of England to do more QE in the next couple of months.


Further falls are likely in coming months, reducing the squeeze on incomes seen last year and therefore providing a much needed boost to economic growth in 2012.

The data therefore add support to the Bank of England's expectation that inflation will drop below its 2 percent target by the end of the year.

Importantly, that should alleviate some of the squeeze on real incomes that was evident throughout last year, which was in turn seen as a key factor holding down consumer spending and adding to the fragility of the economic recovery.

However, unemployment - currently at a 15-year high - looks set to rise further in 2012, and widespread job insecurity, low pay growth and uncertainty about future finances mean even those in work are likely to remain reluctant to spend.


No huge surprises here. The sharp fall in the headline measure is entirely consistent with the MPC's forecast and should help to pave the way for further QE next month.

While the targeted measure remains well above 2 percent, we do expect an aggressive series of falls through the first half of this year, and whilst we may not see 2 percent inflation in 2012, we nonetheless expect subsequent asset purchases to be sanctioned in May as well as in February.