CPI falls to 3.6%

HAMISH_MCTAVISH

CPI 3.6% down from 4.2% last month.

RPI 3.9% down from 4.8% last month.

Generali

HAMISH_MCTAVISH wrote: »

CPI 3.6% down from 4.2% last month.

RPI 3.9% down from 4.8% last month.

The both the CPI and RPI from Dec 2011 - Jan 2012 fell by 0.6%. Expect a further fall next month as the VAT increase continues to drop out, a process that should take about 3-6 months.

michaels

Hmm - why does it take 3-6 months? I was thinking the drop was very small given we were told VAT was adding about 1.3% to the index?

Generali wrote: »

The both the CPI and RPI from Dec 2011 - Jan 2012 fell by 0.6%. Expect a further fall next month as the VAT increase continues to drop out, a process that should take about 3-6 months.

andyroberts1967

Well at least it's now all going the right way, let's hope prices continue to fall in the coming months, I think a lot of people have been squeezed with the price rises in the last year or so. On a plus note, my council have agreed they won't increase the council tax for the next financial year.

StevieJ

michaels wrote: »

Hmm - why does it take 3-6 months? I was thinking the drop was very small given we were told VAT was adding about 1.3% to the index?

I agree, it was a one off why would it take 3-6 months to drop out?

Masomnia

I guess because not all retailers put their prices up right away. 'Buy now and beat the VAT increase!!!!!'

Graham_Devon

The BBC news has said all of VAT has now fallen out.

It's a one off. Same as it was in Jan 2011, and it didn't put that much in terms of percentage points on in January.

VAT has been well overused as an excuse for too long.

Generali

michaels wrote: »

Hmm - why does it take 3-6 months? I was thinking the drop was very small given we were told VAT was adding about 1.3% to the index?

Because retailers tend to absorb some of the increase at first, passing on more as time goes on.

Did TVs in Dixons go up from £400 to £410 on 4/1/11? I suspect not.

If you look at the RPI for 12/2008-6/2009 you can see a large fall followed by successively smaller falls (when VAT was cut to 15%).

Similarly, if you look at the RPI for the first half of 2010 (when VAT went back to 17.5%) you can see that the RPI figure fell less than usual in Jan 2010 and then increased much more quickly than usual during the first 6 months of the year.

Time will tell of course but from my rather unscientific look at the data I think I'm right (link to the data)

wotsthat

Generali wrote: »

Because retailers tend to absorb some of the increase at first, passing on more as time goes on.

I wonder if we've already been seeing some of the VAT effect dropping out.

Some retailers (I saw Tesco do this on may lines) increased prices in advance of the VAT rise so that they could pretend they'd absorbed it.

i.e. the vat rise had an inflationary effect before it was introduced and vice versa.

Generali

If you look at the breakdown of the figures, large contributors to the fall in CPI were food, alcohol, tobacco and fuels (both household and motoring). There's a mixed bag in there of VATable and non-VATable stuff.

My guess is some items (e.g. meals & drinks out and petrol) will change price quickly as net profit margins are slim and prices tend not to be round figures. Others like consumer durables and clothes will tend to change more slowly as people have 'price points' that they are resistant to passing.

ruggedtoast

andyroberts1967 wrote: »

Well at least it's now all going the right way, let's hope prices continue to fall in the coming months, I think a lot of people have been squeezed with the price rises in the last year or so. On a plus note, my council have agreed they won't increase the council tax for the next financial year.

Prices aren't falling. The rate by which prices are increasing has marginally lowered to only almost double what they are meant to be; mostly because an arbitrary and large rise in tax last year has now filtered out.