Tuesday, July 14, 2009

Inflation Falls

The Consumer Price Index (CPI) has fallen below the Bank of England's 2% target, for the first time since September 2007, to 1.8%.

The alternative Retail Price Index (RPI) measure, which includes housing costs, fell from -1.1% to -1.6% as a result of falls in mortgage costs.

RPI is used to determine some pay deals.

When CPI falls to below 1% (as it is expected to do) Mervyn King (Governor of the Bank of England) will have to write to the Chancellor to explain the fall.

However, before the champagne corks start popping, people should realise that by next year the downward pressure on these measures (as a result of lower mortgage deals and cheaper oil) will have abated and the measures will start to rise again.

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