Inflation FALLS due to drop in clothing and toy prices bringing relief for consumers

CASH-STRAPPED consumers won some relief today as the rate of inflation rolled back from a near six-year high.

Prices grew by 3 per cent in December, down from 3.1 per cent in November when inflation reached its highest level since March 2012.

Inflation figures reveal a drop in living costs in December, which is good news for consumers

The drop in inflation comes thanks to a fall in clothing and toy prices, according to the Office for National Statistics.

The outcome was in line with economists’ expectations, who widely believe that Britain’s soaring inflation has now peaked following sterling’s collapse in the wake of the Brexit vote.

British consumers have been searching for a reprieve after taking a double-whammy hit from a Brexit-fuelled jump in the cost of living and paltry wage growth.

Despite December’s fall in CPI, everyday prices still rose more rapidly across the UK as a whole in 2017 than in France, Germany and the wider European Union.

The data from the Office for National Statistics show how inflation has changed

Sterling slipped against the US dollar following the announcement, falling 0.2 per cent to $1.37. Against the euro, the pound was broadly flat at 1.12.

ONS senior statistician James Tucker said: “Inflation has been running at roughly the same rate since last spring following significant increases, partly due to the weaker pound after the European referendum.

“It remains too early to say whether today’s slight fall is the start of any longer-term reduction in the rate of inflation.”

The lion’s share of the downward pressure came from air fares, which counted for a smaller slice of the basket of goods and services in 2017.

It means the cost of air travel dragged on overall prices, despite growing by 52.8 per cent month on month in December, compared with a 48.9 per cent rise in 2016.

What happens when inflation falls?

THE drop in inflation is good news for households who have have been bearing the brunt of rising prices.

Previous rises have been fuelled by the weak pound putting pressure on households with those with the lowest incomes hardest hit.

Today’s fall will ease the pressure on squeezed households and substantially reduces the likelihood of another interest rate rise.

The ONS said the drop was largely due to falling toys, clothes and alcohol prices – as well as a drop in air fares.

It’s good news for savers who will see their pot increase by more than if inflation was higher.

The cost of clothes also fell on the month by 1 per cent in December, compared with a 0.9 per cent drop for the year before, while games, toys and hobbies were down by 2.7 per cent in contrast to a 1 per cent fall for the same period last year.

Food and non-alcoholic drinks also recorded smaller monthly growth of 0.6 per cent, down from 0.8 per cent in December 2016.

The smaller expansion was partly driven by a fall in the cost of vegetables, including premium crisps.

Meanwhile, tobacco prices were applying upward pressure on prices in response to tax increases announced in the Autumn Budget.

The price lifted by 2.7 per cent month on month in December, compared with a 0.2 per cent rise for the same period in 2016.

At the pumps, motorists were also facing higher fuel costs last month, with petrol up by 0.8p per litre on the month to 119.9p per litre.

Diesel also rose by 0.7p to 123.5p.

The Retail Prices Index (RPI), a separate measure of inflation, was 4.1 per cent last month, up from 3.9 per cent in November.

The Consumer Prices Index including owner-occupiers’ housing costs (CPIH) – the ONS’ preferred measure of inflation – reached 2.7 per cent in December, down from 2.8 per cent for the month before.

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