The annual rate of inflation has fallen for the first time in nine months, thanks mainly to a decline in the cost of motoring.

The latest British Government figures show that the headline rate of retail price inflation was 3.6% in December, down from 3.7% the previous month. The figure was in line with City forecasts.

The underlying rate, which excludes the effect of mortgage costs, went down 0.1% on November from 2.8% to 2.7%.

That still leaves it above the Government's target rate of 2.5%. It is the seventh month in a row that the underlying rate has missed the target.

The slight drop in the headline figure was mainly attributed to a fall in motoring costs. Duty increases in the November 1996 budget dropped out of the 12 month calculations and pump prices fell slightly.

There were also decreases in women's and children's clothing and footwear prices, and in leisure services prices.

In addition, food, catering, alcohol, fuel and lighting costs fell slightly.

These falls were counterbalanced to some extent by increases in housing costs and a steep rise in the price of household goods, as well as rises in the prices of tobacco and leisure goods.

Looking ahead to the January figures, officials warned of possible higher prices for potatoes, tomatoes, canned tuna, and butter. Coffee-growers in South America are warning of poor crops because of the El Nino weather phenomenon.

Alcohol and tobacco duty increases will also have an upward effect on the indices for January.

The prices of clothing and footwear, which already fell in the pre-Christmas period, are likely to decrease further thanks to the January sales.

If the trend of recent years is repeated, the increase in the cost of household goods is likely to be reversed, again because of sales discounting.
 

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