United Kingdom: Inflation continues to fall in January
February 14, 2012
In January, consumer prices dropped 0.5% over the previous month, which contrasted the 0.4% rise observed in December. The price drop was the result of lower prices in most major categories, in particular clothing and footwear, transport as well as food and non-alcoholic beverages. Annual headline inflation dropped for the fourth month in a row, falling from 4.2% in December to 3.6% in January, which represents the lowest level since November 2010. The sharp decline reflected a favourable base effect as, in January 2011, the Value Added Tax (VAT) was raised from 17.5% to 20.0%. Owing to the relatively subdued print, the trend began to point downwards, with annual average inflation inching down from 4.5% in December to 4.4% in January. According to its February Inflation Report, the Bank of England expects inflation to average 3._% this year.