UK Jan annual CPI 2.7 pct vs 3.0 in Dec; biggest fall since Jan 2003

UK Jan annual CPI 2.7 pct vs 3.0 in Dec; biggest fall since Jan 2003

	Published : Tue, 13 Feb 2007 10:50 By : Agencies Print this Story

LONDON (AFX) - Falls in the cost of fuel and air travel pushed the UK annual CPI inflation rate back down to 2.7 pct in January after hitting a decade-high of 3.0 pct in December, figures from the Office for National Statistics showed.

The figure is well below the median forecast of analysts polled by AFX News for a much smaller drop to 2.9 pct and is the largest month-to-month fall in the CPI rate since January 2003, the ONS said.

The reading is nevertheless still well above the Bank of England's target of 2.0 pct and is unlikely to derail expectations that UK rate-setters will raise interest rates further after January's surprise hike to 5.25 pct. The annual CPI rate has now been above 2.0 pct for nine months in a row.

Further clues on the interest rate outlook will be revealed when the Bank presents its latest forecasts on inflation and growth in tomorrow's quarterly Inflation Report.

On a month-on-month basis, the figures showed that CPI fell by 0.8 pct from December, against the previous month's 0.6 pct increase and again below analysts' expectations for a fall of 0.6 pct and the biggest fall since July 2001. This is the first time the CPI rate has fallen since July last year.

The statistics office said the biggest downward effect on prices over the month came from transport costs, particularly fuels and lubricants. There was an additional large downward effect from air travel, mainly due to changes in the cost of fares to European destinations, the ONS said.

Other significant downward effects came from food and non-alcoholic beverages and from communication costs, with falls in some landline charges and small falls in mobile handset costs and charges.

The largest upward effect came from alcohol and tobacco.

Meanwhile, the RPI rate of inflation -- a measure which includes housing costs and is used in pension payments and often in pay deals -- also dropped to 4.2 pct from 4.4 pct in December, when it hit its highest level since December 1991.

Analysts had forecast an unchanged reading at 4.4 pct.

On a monthly basis, RPI inflation was down 0.5 pct after a 0.8 pct rise in December, against forecasts for a slightly bigger fall of 0.6 pct.

The biggest downward contribution on the RPI rate came from household goods, where there was a record month-on-month fall in furniture prices and widespread price cuts across a range of items, the ONS said.

The RPI-X measure, which excludes mortgage payments, was up by 3.5 pct year-on-year after a 3.8 pct rise in December, well below forecasts for another 3.8 pct reading.

The annual RPI-X measure nevertheless remains well above the 2.5 pct annual rate that the Bank of England was previously charged with targeting and has been above that level since May.

On a monthly basis, RPI-X was down by 0.7 pct in January following a 0.6 pct increase in December.

Elsewhere, core CPI inflation, which excludes energy, food, alcoholic beverages and tobacco, rose at an annual rate of 1.6 pct, down from December's 1.8 pct rise and below forecasts for another 1.8 pct rise.

On a month-on-month basis, core CPI fell by 0.9 after a 0.6 pct rise in December.

jessica.mortimer@thomson.com

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