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Economy: Surprise fall in inflation seeks CPI hit 2% target for first time in four years

10:22 14 January 2014

Inflation fell to 2.0% last month, the first time it has hit the Bank of England

Inflation fell to 2.0% last month, the first time it has hit the Bank of England's target rate in more than four years.

The rate of inflation fell to the Bank of England’s target of 2% for the first time in more than four years in December.

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The rise in food prices eased to see the Consumer Prices Index (CPI) rate drop to its lowest level since November 2009, when it stood at 1.9%.

Today’s figure from the Office for National Statistics (ONS) beat expectations that there may be a small rise from November’s 2.1% figure, spurred by gas and electricity price hikes.

But while steep increases did have an upward impact, many of the tariff rises had not yet taken effect when the latest data was collected.

The sixth successive monthly drop in inflation eases pressure on the Bank of England, which would have to reconsider its flagship low interest rate policies should inflation look likely to spiral out of control.

The latest drop is a further decrease after inflation reached a four-year low last month. Inflation last met its 2% target, rather than hovering above or below it, in April 2006.

The latest figures showed the usual month-on-month rise in the cost of food and alcoholic beverages from November to December was the smallest it has been since 2006.

It meant the annual rate of inflation in the sector slowed to 1.9%, the lowest rate since May 2010, indicating an easing in the usual pressure on household Christmas budgets.

The main downward contributions to this came from fruit and meat, while the price of fish was lower in December compared with November. Meanwhile coffee, tea and cocoa were cheaper last month than they were the year before, though inflation for bread and cereals accelerated.

Games, toys and hobbies also saw price falls as Christmas approached, with reductions in computer games made for older platforms.

Rising petrol prices had an upward effect on inflation, but the increase in the rate of air fares was lower than in 2012.

A separate measure of inflation, the Retail Prices Index, rose to 2.7% from 2.6% in November. A new measure of inflation, CPIH, which includes housing costs, was unchanged at 1.9%. Another new measure, RPIJ, was also unchanged at 2%.

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