UK inflation rate falls to 3.1%

CPI annual inflation – the Government's target measure – was 3.1 per cent in December, down from 4.1 per cent in November, according to the Office for National Statistics (ONS).

Overall the reduction in the rate of VAT made the largest contribution to the 1.0 percentage point change in the CPI annual rate. There were also effects from a fall in the prices of petrol and diesel and from greater discounting in sales than last year. Eight of the 12 division-level categories made a large contribution to the slow-down in the CPI annual rate.

The category 'clothing and footwear' made the largest downward contribution to the change in the CPI annual rate. The reduction in the rate of VAT lowered the price of men's and women's clothing and footwear. Additionally, there was greater discounting of women’s clothing and footwear than last year. Overall the price of children's clothing fell by more than last year due to discounting in sales.

Transport costs made another large downward contribution. The largest effect came from the price of fuels and lubricants which fell this year but rose last year. The average price of petrol fell by 6.0p per litre between November and December this year, to stand at 89.2p, compared with a rise of 1.7p last year. Diesel prices fell by 6.4p per litre this year, to stand at 102.4p, compared with a rise of 3.0p last year. There was a partially offsetting effect from transport services where air fares, and to a lesser extent coach fares, rose by more than last year.

Further large downward contributions came from:

recreation and culture
furniture, household equipment and maintenance
restaurants and hotels
miscellaneous goods and services
housing and household services, and
communication

RPI inflation slowed to 0.9 per cent in December, down from 3.0 per cent in November. The main factors affecting the CPI also affected the RPI. Additionally, there were large downward contributions from mortgage interest payments and house depreciation which are excluded from the CPI.

RPIX inflation – the all items RPI excluding mortgage interest payments – was 2.8 per cent in December, down from 3.9 per cent in November.

As an internationally comparable measure of inflation, the CPI shows that the UK inflation rate in November, at 4.1 per cent, was above the provisional figure for the European Union as a whole of 2.8 per cent.