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Inflation hits four-year low

Inflation hits four-year low

Consumers are expected to be feeling some relief after inflation fell to a four-year low of 2.1% in November.

The Consumer Prices Index rate (CPI) has not been lower since November 2009, as rises in the cost of food eased.

Another reason behind the decline is that large rises in household energy bills have yet to take effect. But the sting in the tail is that these are likely to make a large upward contribution in December’s figures.

The lower rate comes partly because of comparisons with last year when poor weather affected crops and pushed up prices more steeply.

Yesterday’s figure from the Office for National Statistics (ONS) should provide a crumb of comfort to squeezed households as they stock up ahead of Christmas.

But cost-of-living increases continue to outstrip regular pay rises, with the last published figures showing wage growth at 0.8%.

Howard Arch, the chief economist for IHS Global Insight, said the figures were “reassuring” but warned that consumer purchasing power was still weakened.

He said: “This eases the squeeze on consumers’ purchasing power, which is helpful to growth prospects. Nevertheless, the squeeze on consumers’ purchasing power remains appreciable given that inflation at 2.1% in November is still running at three times average annual earnings growth of 0.7% in the three months to September. This maintains doubts as to whether consumers will be able, or willing, to keep spending at a strong clip over the coming months.”

Meanwhile, the cost of filling a Christmas stocking has increased, with games, toys and hobbies up 2.8% on October, taking the annual increase in prices in the sector up to 1.8%.

Restaurants and hotels increasing their rates by a smaller amount made a downward contribution to inflation.

Petrol prices also fell in November, but less steeply than last year, meaning they made an upward contribution to the overall rate.

The fall in inflation will also ease pressure on the Bank of England as it brings inflation closer to its 2% target.

Bank of England governor Mark Carney hailed the fall in inflation amid a wider economic upturn, in remarks to MPs on the Economic Affairs Committee.

He said: “Inflation has fallen back to within a hair’s breadth of the 2% target and the recovery has finally taken hold.”