By Maximilian Clarke
The consumer and retail prices inflation indexes both remained unchanged over December.
The previous month saw sizeable dips in inflation, following a year of above 5% retail price inflation (RPI) which saw households struggle to keep pace with soaring bills.
Both mobile and landline charges- which are included in the Office for National Statistics’ ‘basket’ of goods- rose, though upwards pressure on inflation was compensated by falling gas petrol and clothing prices.
"We expect this to be the first round of what will be some fairly chunky falls in the inflation figures for the UK," commented Jeremy Cook, chief economist at foreign exchange company, World First. "Our view is that it will be in the mid -2% range come the end of the year.
"UK PPI [the producer prices index- a measure of input and factory gate prices from UK industries] was lower on Friday for the first time in 18 months and, while this takes some time to flow through to the consumer basket, it does show that the pressure from commodity markets is starting to ease.
"The main reason that inflation has moved lower is the fact that last year's VAT increase of 2.5% has fallen out of the year on year basket.
"This should allow the Bank of England to keep monetary policy loose and conditions fertile enough for the green shoots of recovery to grow, or so the theory goes.
"2012 is still going to be a difficult year, however, and as a result we believe this galvanises the Bank's argument that further quantitative easing is necessary. Expect that to materialise in February."
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