Inflation drops to 20-month low as petrol prices fall

Inflation fell to a 20-month low in November, pulled down by a drop in the price of petrol, video games and concert tickets.

Figures from the Office for National Statistics (ONS) show the Consumer Prices Index (CPI) fell to 2.3%, compared with 2.4% in October.

This was the lowest level since March 2017 and is slightly above the Bank of England’s 2% target.

ECONOMY Inflation
ECONOMY Inflation

The decline matches the expectations of economists who had predicted 2.3% due to the drop in fuel prices.

Mike Hardie, head of inflation at the ONS, said: “Inflation was little changed as falling petrol prices, thanks to a substantial drop in the cost of crude oil, were offset by rises in tobacco prices following the duty changes announced in the Budget.”

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the drop marks the beginning of a sharp decline in the coming months.

“Inflation still looks set to be below the 2% target right from the start of 2019 and to average just 1.8% over the course of the year.

“Modestly below-target inflation, however, won’t stop the MPC (Monetary Policy Committee) from hiking bank rate next year, as the committee believes that interest rates still are well below neutral levels and that no spare capacity exists.”

Mr Tombs expects the Bank to increase the rate to 1.25% by the end of next year, from 0.75% currently.

The pound was largely unmoved by the data, trading flat versus the US dollar at 1.26. Against the euro, sterling was down 0.3% on the day at 1.10.

ECONOMY Inflation
ECONOMY Inflation

At the pumps, motorists had lower fuel costs last month, with petrol down by 2.6p per litre on the month to 128.1p. Diesel rose slightly by 0.4p to 136.5p.

Price tags fell on a range of recreational and cultural goods and services. Cultural services, a category which includes theatre tickets, was 1.3% lower compared with the previous month.

Consumers also paid less for media-playing equipment such as televisions, CD players and DVD players, dropping 2.4%.

Transport was cheaper overall, driven by a significant drop in prices for flights. Passenger air transport costs fell 12.1%.

However there was a 0.8% increase in rail fares, and journeys by ferry were 4.4% higher.

The largest upward contribution to CPI was made by higher tobacco prices after duty changes announced in Philip Hammond’s Budget.

Tobacco prices were 3.4% higher in November compared with October.

Accommodation services costs ticked up, rising 1.5% on the month.

The Retail Prices Index (RPI), a separate measure of inflation, was 3.2%, down from 3.3% in October.

CPIH was unchanged at 2.2% in the year to November, while CPI fell to 2.3%, down from 2.4% in October #inflationhttps://t.co/rhNWyIiSiNpic.twitter.com/rqF1TdNfr0

— ONS (@ONS) December 19, 2018

The CPI including owner-occupiers’ housing costs (CPIH) – the ONS’s preferred measure of inflation – was 2.2% in November, unchanged from October.