UK inflation just hit a 14-year low, slumping to 0.5% in the year to December 2014.
The consensus estimate for inflation in December was 0.7%, which would have been a 12-year low.
If inflation falls more than 1% above or below the target 2% rate, the governor has to write a letter to the Chancellor to explain why the target was missed.
The current situation a far cry from the above-average inflation the UK got in the years just after the financial crisis. In September 2011 inflation peaked at 5.2%.
In this case, it’s oil, oil, oil. The collapse of oil prices is driving down fuel prices that make up a significant part of the UK’s inflation index.
Unlike the European Central Bank, the Bank of England seems relatively confident in its ability to keep inflation at around 2% over a longer period, and isn’t scrambling to act as oil prices drop. At the UK’s last inflation report, governor Mark Carney referred to the tumbling oil price as “unambiguously net positive” for the UK.
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