Inflation falls to lowest level in 15 years
13th January 2015

Inflation fell last month to 0.5%, down from 1% in November, latest figures have shown. The Consumer Prices Index (CPI) is now at its lowest level for 15 years.

The Office for National Statistics said the main contributions to the fall came from the December 2013 gas and electricity price rises falling out of the inflation calculation and the continuing drop in motor fuel prices.

Greg Lowson, President of Birmingham Chamber of Commerce said: “Today’s figure is well below the Bank of England’s 2% target and while this is positive news, it is a ‘flash in the pan’ situation. We do not anticipate that this will be a sustained drop and expect prices to increase as fuel costs rise again.

“The fall is primarily because of a reduction in fuel, gas and electricity prices.  A drop in the price of crude oil has affected other inflation indicators such as the Producer Price Index which saw a fall in the overall costs of manufacturing by 0.8% in the year to December.”

The fall means that a basket of goods and services that cost £100.00 in December 2013 would have cost £100.50 in December 2014. This is the joint lowest 12-month rate on record. The CPI 12-month rate was previously 0.5% in May 2000.

Over the last five years, the three main contributors to the 12-month inflation rate have been housing, water, electricity, gas & other fuels, transport (including motor fuels), and restaurants & hotels. Combined, these three sectors have, on average, accounted for half of the 12-month inflation rate each month.

In the year to December 2014, food prices fell by 1.9% and prices of motor fuels fell by 10.5%.

Historically, these prices have been among the main causes of inflation, though this has changed in the last year. The food and motor fuels product groups in total reduced the CPI 12-month rate by approximately 0.6 percentage points in the year to December 2014.