Upon the news of a fall of inflation rate to UK’s target of 2% for the first time since the November 2009, Prime Minister David Cameron said: “It’s welcome news that inflation is down and on target. As the economy grows and jobs are created this means more security for hard-working people”
There are several reasons for this decrease. Firstly, the price rise in food and non-alcohol drinks is at its lowest since 2006. This slowdown is said to be the main contributor to the drop of inflation rate. The price rise in meat has also decreased during this period. Another reason for the inflation rate to reach its target is due to the Christmas sale extravaganza. Discounts during this festive season with the price of toys and games fall at the fastest rate compared to this time last year.
However, the upward trend in price of gas and petrol has actually driven up the inflation rate. Although, some retail stores have confirmed to lower the price of these products.
The downward trend of the inflation rate is a good sign for the UK residents. As the cost of living crisis still continues due to the fact that prices are still rising twice as fast as wages, this good news brings relief to some.
Policy makers are hoping the inflation rate to stay around this target for some time to come and thus, it creates a good bay start for a potential interest rate increase (even if the Bank of England governor Mark Carney has indicated that the Bank will not raise interest rates until the unemployment rate, currently at 7.4%, falls below 7% ).