Game-changer: UK inflation just sank even lower than anyone predicted
UK consumer price inflation slid to 0.5% in December, equalling its lowest ever level. Mischa Frankl-Duval explains what that means.
What happened?
CPI 12-month inflation rate for the last ten years
Source: Office for National Statistics
Sterling was trading at a low of $1.5083 following the announcement, down from $1.5119 immediately before it. The yield on five-year gilts also fell, to below 1%.
The figures released this morning by the Office for National Statistics (ONS) fell well short of the government's official target of 2%, though George Osborne did his best to put a positive spin on the results:
"Inflation is 0.5% - lowest level in modern times", the Chancellor tweeted. "Welcome news with family budgets going further & economic recovery starting to be widely felt."
So what does this mean?
1: Earnings are rising faster than prices, so real wages are growing.
2: There's less chance of the Bank of England raising interest rates this year.
What's next?
"Most economists expect inflation to continue to fall over the next few months, with oil prices at a near six-year low amid concerns of a bigger oil surplus in coming months." said the Financial Times.
"The rapid fall in crude prices is likely to deliver a spending boost to hard-pressed consumers."