U.K. Inflation Rate Drops to 3.6% in January

U.K. prices rose at an annual rate of 3.6% in January, official figures show, slower than the 4.2% rate recorded the month earlier.

The largest downward pressures to this change came from fuels & lubricants, products bought in restaurants & cafes, tobacco, vehicle maintenance & repair, the purchase of new vehicles and alcoholic beverages.

Annual inflation has now fallen by 1.2 percentage points since November 2011; the only time there has been a larger fall over a period of two consecutive months was between October and December 2008. The CPI stands at 121.1 in January 2012 based on 2005 = 100

A factor from last year - the increase in the standard rate of Value Added Tax in January 2011 to 20 per cent from 17.5 per cent - is a significant contributor to the falls in CPI and RPI annual inflation between December 2011 and January 2012. This rise in taxation led to upward pressures on prices between December 2010 and January 2011 (it was estimated to have added 0.76 percentage points to the CPI 1-month change in January 2011), there were, however, no such pressures on prices between December and January this year. This matters as the changes in CPI and RPI annual inflation are calculated by comparing the price changes between the latest two months and the same two months a year ago.

TradingEconomics.com, ONS
2/14/2012 11:20:43 AM