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CPI falls below target for first time since 2009

by David Campbell on Feb 18, 2014 at 09:40

CPI falls below target for first time since 2009

Consumer Price Inflation fell below the Bank of England’s 2% target for the first time since 2009 in January, continuing its sustained fall to hit 1.9%, from 2% at the end of 2013.

Chris Williams, chief economist at Markit, said he believed that the pace of inflation would remain reasonably steady over the next year, taking some pressure off rate expectations.

‘But beyond that the outlook is more uncertain, reflecting uncertainties about the ability for wage growth to revive, energy prices and the exchange rate,’ said Williams.

January was the fifth consecutive month of moderating CPI. The total appeared to have been dragged downward by core inflation in a reflection of deeper than usual January discounting.

Capital Economics pointed to a continued lack of pressure in commodity pricing and political heat over fuel prices as suggesting the potential for continued disinflation over the next few months.

Output pricing inflation also slid, falling from 1% to 0.9% in January, suggesting lower pressure along the supply chain.

‘There is a good chance that CPI inflation will fall to as low as 1% by the end of this year and remain subdued thereafter,’ said Samuel Tombs, UK economist at Capital Economics.

‘This should enable real earnings to rise for the first year since 2007 and allow the MPC to keep interest rates on hold until well into next year.’

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