Inflation falls sharply

20/01/2009

Recent sharp increases to the prices of consumer goods are easing off, official figures confirmed today.

The Office for National Statistics (ONS) said that the annual inflation rate was 3.1 per cent last month, down from 4.1 per cent in November.

This means that there has been a downwards trend in inflation over recent months - with the rate hitting a 16-year high of 5.2 per cent in September.

The ONS figures are included in its Consumer Price Index - which is the government's preferred method of measuring inflation.

To calculate the rate, officials track the costs of pre-selected goods over the month, then compare these prices with those of the same goods a year ago.

While falling inflation might seem to be good news for consumers, economists warn of the consequences of when price rises turn into price falls - or "deflation".

The trend can have very bad consequences for economic growth, because consumers tend to hold off on buying goods - instead waiting for prices to fall further before they make their purchase.

Therefore, there is much less shopper activity, meaning that recessions last longer than they would do in times of rising prices.

Tags; Current UK Economy, Young Family Finances, Retirement Money Problems, Credit Card Lifestyle, Recent Graduate Debt,

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