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.
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.
"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."