Recent economic developments
Supply, costs and prices
CPI inflation was 0.5% in December, down from 1.2% three
months ago and 1½ percentage points below the Monetary Policy
Committee’s (MPC’s) 2% target. That triggered an open letter
from the Governor to the Chancellor of the Exchequer. A large
part of the weakness in inflation can be accounted for by falls in
energy prices. The sterling price of Brent crude oil has fallen by
around 50% since mid-2014, leading to sharp decreases in petrol
prices. Falls in the prices of food and other imports, in part a
consequence of the past appreciation of sterling, have also
weighed on inflation. Overall, the MPC judges that around
two thirds of the undershoot in inflation, relative to target, can be
explained by lower energy, food and other goods prices