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Inflation dip brings cheer to cash-strapped consumers

A 0.6% fall in inflation between November and December 2011 has been welcomed as a much-needed reprieve for financially squeezed households.

Figures by the Office for National Statistics last week revealed the consumer price index fell from 4.8% to 4.2% in December 2011, the biggest decline since November and December 2008. The retail prices index dropped from 5.2% to 4.8% in December. The ONS said the biggest downward pressures on inflation came from petrol, gas and clothing.

Both the RPI and CPI have fallen markedly since September 2011, when the RPI reached a 20-year high of 5.8% and the CPI stood at 5.6%.

Kevin Mountford, head of banking at Moneysupermarket.com, says: “The rising cost of living has had a major impact on household budgets for the past 12 months and signs that this is beginning to reduce are welcome. However, despite inflation falling month on month, prices are still high.”

Vicky Redwood, chief UK economist at Capital Economics, says inflation has dropped for the third consecutive month and further significant declines seem likely, helped by recent announcements of gas and electricity price cuts.

She says: “Obviously these falls in inflation will help alleviate the squeeze on households’ pay, but the deteriorating labour market and tightening credit conditions will maintain the downward pressure on consumer spending this year.”

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