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Inflation - what’s up, what’s down and what’s going to happen next

Just as the Monetary Policy Committee have been saying for a while, inflation is starting to fall back towards their target. The fall to 4.2% in December is rather sharper than expected, and is the biggest monthly fall since April 2009. With further falls almost certain in the next few months as the VAT rise and energy price hikes roll out of the 12-month figures, analysts have commented today that this will leave the opportunity for the MPC to inject further rounds of QE into the economy with less fear of triggering too much demand-pull inflation.

The ONS report that the largest downward pressures on CPI came from petrol, gas and clothing. As so often, the BBC has provided a great analysis, with inflation rates for various categories of goods and services contained in the ‘basket of goods’, along with forecasts of how inflation will move for those items over the next twelve months.

It looks to me like a good year to give up the booze and fags, buy a second-hand car but keep it off the road, take up reading as a hobby, and move to a cheap hotel (but nowhere near to the Olympic park) to avoid paying the heating bills.

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