Falling inflation does not mean falling prices

With the latest inflation figures published suggesting a (surprising) fall in the CPI from 4.4% to 4%, some commentators have suggested that the UK economy may be on its way to some sort of recovery. Of course, every AS level economist will tell you that a fall in inflation is not a fall in prices; they are still rising albeit at a reduced rate. For those workers in the public sector facing a pay freeze and those in the private sector who have seen minor pay increases, the figure still means that most wage settlements are pay cuts. With inflation running at twice the MPC's bilateral 2.0% target, I fear we are not out of the woods yet!