SME NewsCurrent Inflation Rate – Dec 08
Dramatic slowdown in inflation as Consumer Price Index falls by 1% during December 2008. But are we heading for deflation this year?
More dramatic economic data as the rise in the Consumer Price Index (CPI) today fell by 1% to reach 3.1% during December 2008.
This sharp decline in the CPI can largely be put down to the impact in the reduction of VAT as a result of the Pre-Budget Report at the end of last year.
The other major factor contributing to the slow down in inflation was the continuing decline in fuel prices, again symptomatic of the recessionary pressures on the UK and global economies. The average price of petrol fell by 6.0p per litre between November and December last year.
Meanwhile the Retail Price Index virtually fell off a cliff, increasing by just 0.9% in December compared to 3.0% the previous month.
This is clearly as a result of decreases in interest rates feeding through into the housing/mortgage market during this period.
Some economists continue to predict that inflation will become deflation during 2009. With declines as large as these, we may see prices flat-lining sooner than some had anticipated.
[Picture credit: Ben Sutherland licened from Flickr]
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The VAT idea was a terrible one – 2.5% reduction is hardly going to spur on the economy. It will give a boost to the retailers temporarily, but on the flip side reduces the VAT income for the Government by 14.2% – money desperately needed to prop-up the public finances.
Once VAT increases back to 17.5%, together with the other various inflationary pressures on the economy we are going to be in real trouble – watch out for the rocketing interest rates!