Tuesday, December 16, 2008
Inflation - down but not out
Posted by David Smith at 10:15 AM
Category: Thoughts and responses

The fall in consumer price inflation was slightly less than expected, consumer price inflation dropping from 4.5% to 4.1%, against expectations of a drop below 4%. Retail price inflation fell more dramatically, from 4.2% to 3%, reflecting the sharp drop in mortgage interest rates. RPIX, down from 4.7% to 3.9%, is closer to its old target (2.5%) than CPI is to 2%.

Core CPI inflation, excluding food, alcohol, tobacco and energy, edged up from 1.9% to 2%, suggesting genuine deflation is still some way off. More details here. In his letter to the chancellor, reproduced rather badly, Mervyn King talks about the balancing effects of falling commodity prices and a weak pound. He thinks this might be the last letter he has to write to explain the overshoot, and that the next might be to justify an undershoot below 1%.