Inflation to fall as VAT drops from data
CONSUMER price index (CPI) inflation figures published tomorrow are set to show the pace of price rises slowed further, as 2011’s VAT rise drops out of the data and commodities prices slowed.
CPI inflation fell from 5.2 per cent in the year to September to 4.2 per cent in December. Economists widely expect the headline figure to drop to 3.6 per cent in the year to January – still well above the two per cent target the Bank of England is supposed to hit.
That means Governor Mervyn King will have to write his ninth consecutive quarterly open letter to chancellor George Osborne explaining why inflation is so high. If Wednesday’s Bank of England report still forecasts a fall below two per cent in the medium term, markets may well take the outlook as an indication the MPC will further add to QE in May.